November 8, 2017
Can I get an FHA loan without a down payment? That’s a question some ask after learning that some conventional mortgages require a minimum of 10% down, sometimes as high as 20% down. Is there such a thing as a no-money-down FHA mortgage loan?
Down Payment Rules For FHA New Purchase Loans and Construction Loans
All FHA forward mortgages (what you apply for to purchase a home) require a minimum down payment of 3.5% of the adjusted value of the property. There is one exception, and that is for FHA 203(h) rehab loans for disaster victims in federally declared disaster areas. The FHA 203(h) rehab loan requires NO down payment UNLESS it is used in conjunction with an FHA 203(k) rehab loan (which is for general use and not limited to disaster areas).
The FHA Loan Handbook, HUD 4000.1, states that for FHA 203(h) Rehab Loans for disaster victims;
“The Borrower is not required to make the Minimum Required Investment (MRI). The maximum Loan-to-Value (LTV) ratio limit is 100 percent of the Adjusted Value. If a 203(k) is used in conjunction with a 203(h), the 203(k) LTV applies.”
FHA loan down payment requirements may be higher depending on a borrower’s credit qualifications and lender standards. FHA loan down payments may also be affected by the type of transaction-identity of interest transactions, for example, are limited to an LTV of 85%.
FHA Loan Down Payment Rules For Refinance Loans, Reverse Mortgages
FHA loan rules state that no down payment or minimum required investment is needed for refinance loans or FHA reverse mortgages (HECM loans).
The amount of the refinance loan may not be 100% of the value of the property, but no cash up front is required in the form of a down payment for these mortgages. Closing costs and other fees may apply.
Borrowers should expect to pay closing costs, lender fees, etc. on these transactions. If you are interested in financing some closing costs, ask your loan officer what options are available to you. The loan-to-value ratio and other factors may be affected by how long you have owned the home, credit scores, and other factors.
FHA Loan Down Payment Rules For Loan Assumptions
In situations where a borrower is allowing the FHA mortgage to be assumed by another person, FHA loan rules may restrict the LTV depending on the nature of the transaction. According to HUD 4000.1:
“The assuming Borrower is not required to make a cash investment in the Property. The assuming Borrower may assume 100% of the outstanding principal balance of the Mortgage, subject to the restrictions on LTV ratio for Investment Properties and HUD-approved Secondary Residences.”
That means that if you are NOT assuming a loan on an investment property or secondary residence, you won’t be required to make a down payment according to HUD rules. Lender standards may vary.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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