March 7, 2012
There are several government-backed home loan programs available for qualified borrowers. Some programs are for a specific set of people, such as the VA insured loan program for eligible veterans, while others like the FHA insured mortgage loan program are intended for any qualified borrower.
There’s sometimes a bit of confusion between VA loan rules and FHA home loan regulations because the two programs are insured by the government, albeit by different agencies. VA home loans, for example, feature a no-money-down option that is sometimes mistaken for a feature of the FHA home loan program. Occasionally we get a reader question asking if the FHA loan program offers a similar no down payment FHA mortgage or if first-time FHA loan applicants are required to make a down payment.
All FHA home loans require a minimum down payment which is 3.5% at the time of this writing. That minimum down payment is required of all borrowers regardless of whether they have applied for an FHA guaranteed loan before or not. Additionally, some borrowers may be required to provide a higher down payment depending on the circumstances of the loan.
For example, a borrower who agrees to purchase a home with an FHA mortgage that has a sales price higher than the FHA appraised market value of the home. In this situation the borrower must pay the difference between the asking price and the appraised value out of pocket–this amount cannot be financed. The FHA will not insure a home loan for more than the appraised value. That doesn’t mean the FHA denies the loan–it gives the borrower the option of paying the difference.
Borrowers who can’t afford to pay the difference must look for another home, or re-negotiate with the seller and try to come to an agreement that is closer to the FHA appraised value.
While it’s true that borrowers can’t get a no-money-down option on an FHA home loan, planning ahead and preparing for that down payment at least a year in advance can help the borrower lessen the financial strain of the required down payment.
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.
Browse by Date: