Facts About Down Payment Assistance and FHA Loans

April 1, 2019

First-time home buyers are often concerned about the amount of their down payment requirement with a new home loan.

That is one reason why FHA mortgages are so attractive to some borrowers-the 3.5% down payment requirement (for those who qualify for maximum financing) is an excellent alternative to mortgages with higher down payment requirements.

But what do you need to know when it’s time to seek down payment assistance for your FHA loan? FHA loan rules do permit down payment assistance as long as it meets FHA standards.

FHA Loan Down Payment Assistance for First-Time Borrowers

Your lender, a local agency, or a state-run organization may have information about home loan down payment assistance programs in your area. This assistance must not come from prohibited sources (cash advances, payday loans, non-collateralized loans, pink slip loans, etc.) and must be properly sourced.

Many of these programs are aimed at first-time home buyers, but FHA loan rules themselves do not restrict FHA loans or down payment assistance to new borrowers. You will need to inquire about the specific rules of any down payment assistance program you wish to use. Some may be need-based, some may not.

FHA home loans themselves are not need-based, have no income cap or limit, and do not require the borrower to be in a specific type of financial need situation.

What Does the FHA Do to Help Borrowers Who Need Down Payment Assistance?

The FHA and HUD do not themselves offer a down payment assistance program; that is up to the local community. But the HUD official site does provide a list of state home ownership programs that may include down payment assistance. You can begin your search for a local agency that may provide down payment help there.

Can Down Payment Assistance for My FHA Loan Come From a Person Instead of an Agency?

The short answer is yes, down payment gift funds can be provided by a family member, a friend, an employer, etc. The funds cannot come from the seller or any other person or party that has a financial stake in the outcome of the mortgage loan transaction.

The seller cannot contribute toward your down payment, but the seller is permitted to contribute closing costs up to six percent of the sale price of the home. Closing costs are considered entirely separate from the down payment, and the amount of your closing costs cannot be considered a part of the down payment.
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