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If you want to apply for an FHA mortgage, one of the first things you will learn is that FHA borrowers make a minimum 3.5% down payment, unless required to pay more due to low credit scores. How should you approach the down payment issue?

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Do You Need Down Payment Help for Your FHA Loan?

May 26, 2020

Do You Need Down Payment Help for Your FHA Loan?
If you want to apply for an FHA mortgage, one of the first things you will learn is that FHA borrowers make a minimum 3.5% down payment, unless required to pay more due to low credit scores. And while some might assume they will pay what the FHA loan program rules require, it could be more depending on the FICO score issue where lender standards, state law, and other variables are present.

How should you approach the down payment issue? There are some things to keep in mind when planning a budget and deciding how much of a down payment you can afford to make.

For starters, the FHA has a FICO score minimum range for the lowest down payment possible, but lender FICO score minimums also apply. The lender’s standards may exceed the FHA requirements while keeping the higher standards “reasonable and customary” for a similar type of home loan with a different, but equally financially qualified client.

Standards Vary

Remember that shopping around for a lender is important since there are no standardized lender FICO score requirements; each lender sets their own FICO score thresholds for your loan.
The FHA minimum FICO score requirement for the lowest down payment? 580 or above. FICO scores in ranges below 580 (579-500) must put down 10% instead of the minimum. FICO scores below 500 are not eligible for FHA mortgages or refinance loans.

Down Payment Assistance Programs May Be Able to Help

Borrowers who struggle financially to save up enough of a down payment may feel 3.5% is too much, but FHA loans allow for local down payment assistance help.
 
Financial assistance for your down payment is regulated closely but may originate from your family, employer, or even a local agency. These funds must be sourced properly according to FHA loan rules. What are those rules?

Down payment help cannot come from payday loans, cash advances, and cannot be expected to be repaid at a later time. Down payment gifts must be true gifts. They must have no expectation of repayment or otherwise have strings attached.

Talk to a Loan Officer

Each lender has other requirements unique to that financial institution; it’s best to ask what those rules might be ahead of seeking down payment assistance. You can save a lot of time ruling out sources of funds that are not acceptable and concentrate on those the lender can approve. Talk to a loan officer about these issues while you are still planning and saving for your home loan.

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