Where can my FHA loan down payment money come from? It’s an important question to ask, and some borrowers might not understand the difference between closing costs that are not part of the down payment compared to what is allowed to be counted toward it.
FHA Loan Down Payment Requirements
For most forward FHA mortgages, the down payment requirement includes a minimum of 3.5% of the adjusted value of the home. Some FHA home loans such as refinance mortgages don’t require a down payment; FHA rehab loans for those in Federally declared disaster areas are not required by the FHA to make a down payment regardless of whether the rehab loan is a forward mortgage or a refi.
Is My Up Front Mortgage Insurance Premium Part Of My Down Payment?
No. The FHA Up Front Mortgage Insurance Premium, or UFMIP, is not considered part of the borrower’s minimum investment/down payment. It is a separate expense and may be financed into the loan in its’ entirety or paid in full by the borrower in cash at closing time.
Can My Seller Contribute Toward My Down Payment?
No. The seller is technically permitted by FHA home loan rules to contribute to other aspects of the loan (certain closing costs, etc.) but the down payment funds themselves cannot come from any party with a stake in the financial outcome of the loan. According to HUD 4000.1, the FHA loan handbook, this prohibition extends to (but is not limited to) the following:
(1) the seller of the Property;
(2) any other person or Entity who financially benefits from the transaction (directly or indirectly); or
(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.
FHA loan rules also add, “While additional funds to close may be provided by one of these sources if permitted under the relevant source of funds requirements above, none of the Borrower’s MRI may come from these sources. The Mortgagee must document permissible sources for the full MRI in accordance with special requirements noted above.”
Can I Get Down Payment Assistance From Third Parties?
Depending on programs available in your area, down payment assistance may or may not be available. This assistance must meet all FHA loan requirements. Gifts of cash for down payment purposes must be legitimate gifts with no expectation of repayment.
Can I Take Out Loans To Make My Down Payment?
There are several factors which affect whether you may apply for a loan to make your down payment. State law, lender standards, and yes, FHA loan guidelines have a great deal to say about this subject. FHA loan down payments cannot come from payday loans, pink slip loans, credit card cash advances, or any kind of “non-collateralized” loan. You will need to discuss your down payment sources with your loan officer to see what is acceptable.
We will explore more on FHA down payment issues in another blog post.