June 19, 2019
Many buyers want to know how much their FHA loan down payment requirement is. The answer is not as easy as quoting a percentage since there are variables that can affect the amount of the down payment you will be required to make.
FHA Loan Down Payment Basics
There is no fixed dollar amount for the down payment-each transaction will have its’ own required down payment amount based on the calculation below.
The lowest down payment you can make with an FHA mortgage is 3.5% of the adjusted value of the home. There are circumstances where a higher down payment is required because a borrower’s FICO scores don’t qualify them for maximum financing.
In those cases, FHA loan rules dictate that where a borrower’s FICO scores are between 500 and 579, the lowest down payment possible is 10%.
Please note that these are NOT lender requirements which may be higher in the FICO score area than the FHA minimums listed above.
Situations Other Than Low FICO Scores When A Higher Down Payment Is Required
A higher down payment may be needed in certain cases such as when someone wants to buy a home from another person they have a business relationship with or (in certain cases) family members. These transactions are known as “identity of interest” transactions and depending on circumstances may require the borrower to pay 15% down.
There are certain exceptions such as when the borrower buys the principal residence of another family member or in cases where a property owned by another family member where the borrower “has been a tenant for at least six months immediately predating the sales contract.”
FHA loan rules in this section add that a lease “or other written evidence to verify occupancy is required.”
Buying A Home Where The Sales Price Exceeds The Appraised Value
While technically NOT a down payment per se, borrowers would be required to come up with the difference between the appraised value of the home and the sales price in situations where the price is higher than the value.
Borrowers cannot be forced to do this, which is why the FHA ‘escape clause” is present-to allow the borrower to walk away from the loan without penalty if the appraised value is lower.
You cannot finance the difference between the appraisal and the asking price, and FHA does not want to force borrowers to accept a transaction where this is the case. But if you do choose to buy the home anyway, you will be required to pay the difference at closing time along with a down payment.
Ask your lender about your chosen financial institution’s down payment policies to learn more about how that company handles such requirements.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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