FHA Home Loan Down Payment Rules You Need to Know

May 4, 2020

FHA home loans are governed by the guidelines in HUD 4000.1 about the source of your down payment funds. Did you know you are required to document those sources no matter where your down payment money is sourced from? It is a very good idea to learn the basic rules for FHA down payments so you can avoid wasting time as you get closer to loan closing day.

FHA Down Payment Rules: Expect to Make a Down Payment

A down payment is required 100% of the time for new purchase FHA loans and your down payment amount may be affected by your credit scores. Expect to make a minimum down payment of 3.5% if your credit score meets FHA and lender standards; all others will be required to pay a minimum 10% down.

FHA Loan Down Payment Sources: The Rules You Need to Know

When it comes to your down payment, sourcing counts. The funds cannot come from payday loans, cash advances on your credit card, etc. Are you getting help with down payment fund? Anyone helping you must also follow the same sourcing rules as you; no cash advances, payday loans, etc.
FHA mortgage loan down payments require a paper trail; you cannot accept a bag of cash from a friend or family member and expect to use that as a source of down payment funds. Your lender will require statements showing money deposited, the source of that money, etc. Undocumented down payment funds are not allowed.

You Cannot Include Your Down Payment in the Mortgage

Down payments are due as part of your cash to close; you cannot finance the down payment or otherwise not make the payment in your cash to close. There is no such thing as a zero-down FHA purchase loan.

But you CAN get down payment assistance from a friend, family member, employer, or a third party that meets FHA requirements. Any down payment help you get from one of these sources must meet the same requirements listed above. Additionally, third parties cannot offer you a “gift” of down payment money AND expect repayment of that “gift.”

It takes time to save up a down payment, and assistance programs can definitely help shorten that time. But what you should know about these programs? They are offered in your local area by local agencies, when offered. The FHA does not offer down payment assistance programs and your lender or any other party to the deal cannot provide you with down payment help.

Talk to your loan officer if you are not sure how FHA loan down payment requirements affect your transaction.

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