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Reader Questions: FHA Loan Down Payments

February 26, 2013


A reader asks, “I am thinking about purchasing a home. I’ve been to many open houses (any where I see a signs posted). If a house costs $250,000 is it possible to be approved for a home loan with no money down, if not how much down payment do I need to be approved?”

FHA guaranteed home loans sometimes get confused with the VA loan program. VA loans, available to qualified military members and veterans, are offered with a no money down option. But this is not true in the case of FHA home loans, which have a minimum down payment of 3.5%.

There is no specific, set dollar amount for the required minimum down payment, since the 3.5% is a percentage of the contract sales price of the home. Also, 3.5% is only a minimum down payment–borrowers are free to pay more money down, there is no prepayment penalty with VA home loans.

Let’s look at the FHA official site’s description of the FHA loan program, written for first-time home buyers, to get a better idea of what’s required with an FHA loan and what you can expect. The goal of the FHA loan program is:

“…To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.”

What are the eligibility requirements for an FHA guaranteed home loan? According to the FHA official site:

  • The borrower must meet standard FHA credit qualifications.
  • The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
  • Eligible properties are one-to-four unit structures.”

This is the basic information a borrower needs to get started. It’s important to know you should begin preparing for any type of home loan at least a year in advance, saving up for appraisal fees, checking your credit report and FICO scores, paring down your debt-to-income ratio, etc. The earlier you start planning for your new home, the better.

Do you have questions about FHA loans or FHA refinance loans? Ask us in the comments section.

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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