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FHA Home Loan Down Payment Rules in 2023

May 30, 2023

Mortgage Trends

What must you know about the down payment requirement for an FHA mortgage? FHA home loans have specific rules about the amount of your down payment and where it can come from. 

Knowing the down payment rules before you start saving for your home loan may make the entire process more efficient, especially if you know you’re required to give the lender the sources of your down payment money and document it accordingly.

FHA Loan Rules: Down Payments Are Different From Other FHA Loan Costs

Some want to know if their down payment requirement can include the money they pay toward closing costs, lender fees, or earnest money.

But such costs do not count as part of your down payment amount; you must provide funds for your entire down payment separate from your closing costs and related expenses.

FHA Down Payments Require Documentation

Some assume they may write a check to their financial institution for the amount of the down payment and that’s the end of the process. Is this true? Sadly, no, a participating FHA lender must verify all down payment funds.

FHA lenders are required to show the money does not come from sources that aren’t allowed. Those unapproved sources include credit card cash advances, payday loans, or being given a down payment gift from a party with a financial stake in the outcome of the loan transaction.

Gifts From Friends And Family

The same sourcing rules apply to down payments no matter where they come from. No payday loans, no credit card cash advances, and downpayment funds must be properly sourced in writing.

The documentation must show the sourcing–where the family member or friend obtained the cash for the gift. Furthermore, down payment gifts cannot be loans in disguise.

FHA Down Payment Amounts: How Much Will You Pay?

FHA loans aren’t like VA home loans with a no-downpayment option. FHA loan down payments are either 3.5% or 10% depending on the applicant’s FICO scores.

There are some exceptions to FHA loan down payment rules for those applying for an FHA One-Time Close construction loan. For these mortgages, lender standards may require you to use your own funds and don’t allow down payment assistance. This is a lender standard, not the FHA’s rule.

On Making Higher Down Payments

Making a higher down payment isn’t always possible. But for those who can do it, paying more upfront potentially lowers your monthly payment, but more importantly, it can save you money over the loan’s lifetime in interest payments. 

Some borrowers may be required to make a higher down payment as a compensating factor in cases where the borrower’s FICO scores do not qualify for the lowest down payment amount.

Joe Wallace - Staff Writer

By Joe Wallace

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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