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What do you need to know about the FHA home loan rules for down payments? The first thing to remember is that down payments are required on all FHA purchase loans whether for a Condo loan, a One-Time Close construction loan, or other types of FHA loan used to buy or build a house.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Five FHA Loan Rules for Down Payments

December 26, 2019

Five FHA Loan Rules for Down Payments
What do you need to know about the FHA home loan rules for down payments? The first thing to remember is that down payments are required on all FHA purchase loans whether for a Condo loan, a One-Time Close construction loan, or any other type of FHA loan used to buy or build a house.

1) Down Payments Must be Paid According to Lender Standards and FHA Rules

Down payment money can’t just be brought to the lender on closing day. It has to be properly sourced, verified, and documented according to FHA loan rules. Each lender may have a specific procedure for this-you will need to discuss how to deliver your down payment funds with your loan officer.

2) Down Payment Amounts May be Affected by Credit Scores

If your credit score does not qualify you for the lowest possible down payment of 3.5% of the adjusted value of the home, you will be required to make a 10% down payment. The FHA loan base FICO scores for the lowest down payment are in a range starting at 580 or higher, though your loan officer may have higher FICO score requirements.

3) Down Payment Help May be Available

The FHA does not offer or approve down payment assistance programs, but they may be available in your local area. The lender, the seller, and other interested parties with a financial stake in the outcome are not allowed to provide down payment gifts.

But a third party such as a family member, friend, employer, or even local agencies can contribute IF their gifts have no expectation of repayment and meet FHA requirements.

4) The Seller’s Role

Sellers are forbidden from providing down payment funds. They are permitted to contribute up to six percent of the sale price of the home in closing costs, however. That allows the borrower to take some money saved for those closing costs and apply the money toward a down payment if the borrower chooses to do so.

5) Down Payment Money Handling Dos and Don’ts

The lender is required to source your down payment. That means for best results and the fastest possible process in this area, you want to create a “chain of custody” for the funds starting from where the money originated from.

FHA loan rules say down payment money cannot be sourced via payday loans, credit card cash advances, pink slip loans, “gift” funds that are expected to be repaid, etc. Be sure to save all deposit slips and any other record of the transaction to receive or deliver down payment gift funds.


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