What you should know about FHA loan down payments includes understanding the lender’s requirements for verifying the source of your down payment funds, and the fact that your down payment is not affected by other home loan fees or expenses. What do these things mean? The FHA Loan handbook, HUD 4000.1, has the answers.
FHA Home Loan Down Payment Basic Requirements
HUD 4000.1 tells the lender that the lowest possible down payment is 3.5% of the adjusted value of the property. This does not apply for HUD-owned “repo” homes also known as HUD REO properties. The rules for these homes includes the possibility of a $100 down payment (lender standards may also apply).
The down payment is a condition of loan approval; the only FHA home loan “forward mortgage” for the purchase of a new property that does NOT have a down payment requirement in the FHA loan handbook is the FHA 203(h) loan for disaster victims.
That loan features 100% financing unless the loan is being used in conjunction with another FHA loan, in which case the down payment requirements of that loan apply.
FHA Loan Down Payment Sources
Your lender is required to verify the source and amount of any gift funds used toward your down payment. Some sources cannot be approved; you can’t get down payment gift funds from anyone who may benefit from the sale of the home, for example.
You also cannot use “gift funds” that have an expectation of repayment. The donor is required to supply documentation that no repayment is expected.
Gift fund donors are permitted to use the proceeds of a loan as gift funds, but in such cases the donor must certify that the borrowed funds are not sourced from any party that stands to gain from the sale of the home to the borrower.
You cannot use payday loans, pink slip loans, or credit card cash advances as sources of your down payment funds. The lender will require documentation of the sources of all funds to be used as a part of your money down.
FHA Loan Down Payment Requirements and Other Expenses Of The Home Loan
Some borrowers mistakenly believe that FHA lender fees, Up Front Mortgage Insurance Premiums, or other expenses related to the FHA home loan may be counted towards the down payment. This is not true. FHA mortgage loans require the down payment above and beyond those other expenses of the mortgage.
Your other costs do not result in a reduced amount of down payment required at closing time.