March 23, 2023
Borrowers have many questions about FHA loan down payment rules, which can be a tricky issue for some in the beginning–do you know what is required for an FHA loan down payment?
For starters, the source of your down payment funds will be scrutinized. You can’t provide a down payment from a credit card cash advance or non-collateralized loan.
You cannot use payday loans for your down payment. You cannot use funds from third parties, such as friends or family, from these unapproved sources, either.
Sources of down payment funds acceptable to the FHA include cash saved by the borrower, certain retirement funds, stocks or other assets that have been cashed in, certain types of gift funds from a relative may be acceptable if the funds meet FHA requirements, etc.
Down payments for FHA mortgages are a minimum of 3.5%. FHA loan rules state:
“Minimum Required Investment (MRI) refers to the Borrowers contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the Adjusted Value of the Property.”
That minimum amount may be higher in some cases depending on the borrower’s FICO scores and other financial qualifications.
A down payment may also be higher depending on the circumstances of the loan–certain loans may require a higher down payment, such as a loan where there is a non-occupying borrower.
In such cases, FHA loan rules found in HUD 4000.1 state:
“For Non-Occupying Borrower Transactions, the maximum LTV is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the Borrowers are Family Members, provided the transaction does not involve:
–a Family Member selling to a Family Member who will be a non-occupying co-Borrower; or
–a transaction on a two- to four-unit Property.”
Your down payment is completely separate from other expenses, including closing costs. The borrower and lender cannot work together to include closing costs as part of the down payment, so it is important to begin saving and budgeting for your new home as early as possible.