Even with the FHA loan program’s low 3.5% down payment requirement, some borrowers struggle to come up with the minimum required investment for the purchase of an existing home or construction of a new home.
Fortunately, there is home loan down payment assistance available for borrowers from local agencies (the FHA itself does not provide down payment funds) and there are resources you can search to find the down payment help you need in your local area.
But there are rules for down payment grants, home buyer grants, and other forms of down payment help. FHA loan rules say any down payment help must meet FHA requirements and must not be used in ways that are against the rules.
For example, some well-intentioned groups may offer down payment funds to qualifying borrowers only to violate FHA loan guidelines by offering that money to pay down borrower debts to help them be a more attractive loan candidate.
The FHA Loan rulebook, HUD 4000.1, anticipates this and issues the following guidance for lenders:
“FHA does not ‘approve’ downpayment assistance programs administered by charitable organizations, such as nonprofits. FHA also does not allow nonprofit entities to provide gifts to pay off:
- Installment Loans
- credit cards
- similar debts”
The lender is charged with insuring that the funds provided to the borrower do not come from prohibited sources such as a credit card cash advance, a pink slip loan, money provided as a “gift” but with an expectation of repayment, etc.
FHA loan rules do not allow any down payment gifts to come from the lender, seller, or anyone else who might benefit from the sale.
Who qualifies for down payment grants or down payment assistance gift funds? There are no standardized rules; some programs may require you to be a first-time home buyer, others may not.
Some programs are need-based, others simply require you to provide the details about the home you want to buy.
There are privately operated down payment assistance programs, but your state government may also operate them; go to the official site for your state government to see if you qualify. Some down payment programs are for public servants such as firefighters, police officers, veterans, etc.
Other help will be open to state residents (check the individual state program for guidelines in this area), and some may offer help to those who have recently moved to the area such as military members at a new duty station, etc.
You can get started finding a down payment help program by asking your loan officer or realtor if they know of anything in the local area. You can expand your search to state or local government programs and local entities that also may be able to help.