FHA Loan Down Payment Rules and Requirements

One big difference between FHA loans and conventional loans is the down payment. Before applying for an FHA loan, most applicants are much concerned with the down payment requirements. Two most commonly asked questions are: How much down payment should I pay and what are possible sources of my down payment. You’ll find the answers here.

Some FHA mortgage loan borrowers mistakenly think that FHA rules for down payments vary from state to state. However, it’s just a mistaken impression. The truth is that FHA rules for down payments apply to almost all U.S. states. It means that your down payments may be the same no matter where you live.

How much down payment do you need for FHA?

FHA loans are the perfect home loan solution for low- and medium-income families since they only need to pay a small portion of down payment. If you qualify for receiving an FHA loan, your down payment for the loan can be as low as 3.5% of the purchase price. An FHA loan can help finance most of your closing costs and other related fees. The minimum down payment amount is available on 1-4 unit properties.

When you qualify for the minimum down payment of 3.5%, your down payment will be $14,000 if you’re purchasing a $400,000 home. However, if you do not know the exact sales price of your dream house, you will have no idea of the specific figure for the down payment you need to pay.

But not every FHA loan applicant qualifies for the minimum down payment.

Two important factors will affect your down payment amounts: your creditworthiness and regulations of specific FHA lender.

Generally, you must have a credit score of at least 580 to be eligible for the 3.5% down payment plan. Now many FHA lenders require borrowers to have a credit score of 620 or higher. Your credit score not only determines your down payment for an FHA loan but affects your mortgage rates and terms.

Be sure to check your credit report right now. If your credit worthiness disqualifies you for the lowest possible down payment, try to improve your credit scores prior to your application. Otherwise, you will have to pay a larger amount of down payment. If you have a credit score between 500 and 580, a minimum of 10% down payment is required if you want to receive an FHA-insured mortgage loan.

Each FHA-approved lender has specific regulations on down payments. Though most banks offer the chances of qualifying for the bonus of 3.5% down payment, like U.S. Bank, some lenders may have higher down payment requirements. One example is Bank of America.

If you’re applying for an FHA loan through Bank of America, your minimum down payment can range from 5% to 20% of the house’s sales price. Bank of America determines your exact down payment based on several factors, including your loan amount and your credit history. However, you cannot get an FHA loan from Bank of America with a down payment lower than 5%.

Now it can be easy to find that your down payment is usually determined by several factors. If you want to come up with the exact amount of the down payment for an FHA loan, please contact your potential lender and ask about their FHA loan rules on down payment. Each lender’s requirements on FHA loan down payment might vary due to a variety of reasons.

FHA Loan Down Payment Sources and Documentation

I guess many FHA loan applicants also want to know the possible sources of down payments. Since the down payment is not included in the cost of an FHA loan, you must pay the down payment up front. According to the FHA rules, there are various acceptable sources for the down payments of FHA loans.

As for your down payment, most FHA lenders will accept cash saved at home, cash from savings & checking accounts, private savings club funds and other types of accounts. Of course, many other types of funds are also accepted, such as savings bonds, investment accounts (like IRAs and 401k accounts), gift funds and the money from the sale of personal property.

Given the fact that your down payment can be up to 10% of the home’s sales price, it can be a considerable amount of money. Plus the down payments must be paid through any of the above down payment money sources. You’d better plan your budget for an FHA home loan as soon as possible if you want to avoid financial strain at the closing time.