FHA Home Loan Down Payments: What to Know Before You Buy
March 13, 2024
FHA home loan down payments are typically lower than many conventional mortgage equivalents, especially if you can’t afford the 20% down needed to avoid conventional private mortgage insurance, which is required on a conventional mortgage.
According to the Consumer Financial Protection Bureau, those who don’t pay 20% down on a conventional loan are subject to down payment requirements of up to 15%.
“Most lenders offer conventional loans with PMI for down payments ranging from 5 percent to 15 percent.” The Bureau adds that “some lenders may offer conventional loans with 3 percent down payments,” but your experience may vary.
FHA Down Payment Requirement
The FHA’s 3.5% minimum down payment is offered to all qualifying borrowers with FHA-required FICO scores of 580 or above. Lenders may have higher standards, and reviewing several banks to see what is available pays off in the long run.
Don’t forget that your FICO scores may also play a role in determining your down payment.
Down Payment Money
Some borrowers don’t realize (at first) that it’s not just that you have funds available to use to make your FHA loan down payment at closing time but also where the money has come from and how long it has been in your account.
Much has been written about sourcing issues for FHA loan money down, but not as much about how long you must have it in your account.
Lenders require you to provide proof of the source of your down payment money, but they also want to know how long you have had the funds in your account.
“Seasoning” Your Down Payment
Typically, a large sum of money appearing in your bank account within a few weeks of closing isn’t acceptable to the lender unless there is documentation as to the source.
The consumer credit agency Experian notes, “A lender's financial review includes a detailed examination of at least 60 days' worth of bank statements...” noting that any money that cannot be sourced properly is money the lender cannot accept for a down payment.
Furthermore, the lender “will not include them in your financial assets when gauging your ability to make your mortgage payment.”
No Cash Accepted
Your lender has a standard process for the down payment including how that payment is to be made.
You can’t bring cash or a personal check to closing day. You must obey your lender’s instructions and not deviate, even when it seems like someone from the bank is telling you not to. That’s a scammer trick, and you should never deviate from the plan you and your loan officer work out without hearing directly from the loan officer.
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Your Home Loan is Called a Mortgage
According to the Consumer Financial Protection Bureau, those who don’t pay 20% down on a conventional loan are subject to down payment requirements of up to 15%.
“Most lenders offer conventional loans with PMI for down payments ranging from 5 percent to 15 percent.” The Bureau adds that “some lenders may offer conventional loans with 3 percent down payments,” but your experience may vary.
FHA Down Payment Requirement
The FHA’s 3.5% minimum down payment is offered to all qualifying borrowers with FHA-required FICO scores of 580 or above. Lenders may have higher standards, and reviewing several banks to see what is available pays off in the long run.
Don’t forget that your FICO scores may also play a role in determining your down payment.
Down Payment Money
Some borrowers don’t realize (at first) that it’s not just that you have funds available to use to make your FHA loan down payment at closing time but also where the money has come from and how long it has been in your account.
Much has been written about sourcing issues for FHA loan money down, but not as much about how long you must have it in your account.
Lenders require you to provide proof of the source of your down payment money, but they also want to know how long you have had the funds in your account.
“Seasoning” Your Down Payment
Typically, a large sum of money appearing in your bank account within a few weeks of closing isn’t acceptable to the lender unless there is documentation as to the source.
The consumer credit agency Experian notes, “A lender's financial review includes a detailed examination of at least 60 days' worth of bank statements...” noting that any money that cannot be sourced properly is money the lender cannot accept for a down payment.
Furthermore, the lender “will not include them in your financial assets when gauging your ability to make your mortgage payment.”
No Cash Accepted
Your lender has a standard process for the down payment including how that payment is to be made.
You can’t bring cash or a personal check to closing day. You must obey your lender’s instructions and not deviate, even when it seems like someone from the bank is telling you not to. That’s a scammer trick, and you should never deviate from the plan you and your loan officer work out without hearing directly from the loan officer.
------------------------------
RELATED VIDEOS:
Sometimes It Pays to Refinance
Don't Forget Your Closing Checklist
Your Home Loan is Called a Mortgage
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