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FHA loan rules require a minimum credit score of 580 or better for 3.5% down payments. Like most down payments, the source of your down payment funds including gift funds requires proper sourcing.  Make sure you provide a letter with any down payment gift that explains the amount.

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

FHA Loans and the 3.5% Down Payment

April 16, 2021

FHA Loans and the 3.5% Down Payment
Why do FHA home loans feature lower down payments than some conventional mortgages? While it’s true that there is a three percent down loan called the Conventional 97 which actually features a lower down payment requirement than FHA mortgages, this loan can feature restrictions which make it far less flexible than an FHA mortgage.

FHA Low Down Payment Loans Versus Conventional 97 Mortgages

Conventional 97 loans do only require three percent down. But they can feature the following restrictions:
 
  • Fixed-rate loans only
  • The property must be a single-unit property
  • No manufactured homes
  • The buyer has not owned a home in the last three years
  • The loan amount is at or below the typical area loan limit--no Jumbo loans
What does the FHA home loan offer by comparison? FHA Loans allow all of the following with a low 3.5% down payment to those who qualify. FHA loan rules require a minimum credit score of 580 or better for 3.5% down payments, and lender standards also apply to qualify for:
 
  • 3.5% down payment
  • Manufactured homes, mobile homes, and modular homes eligible
  • Gift funds accepted for the down payment with proper documentation
  • Purchase a home with up to four living units
  • No first-time home buyer requirement
  • FHA loans permit Jumbo loans in excess of the loan limit for that housing market
  • No penalty for early payoff of the loan
FHA Home Loan Down Payment Rules

Like most down payments, the source of your down payment funds including gift funds requires proper sourcing. 

Make sure you provide a letter with any down payment gift that explains the amount, whether or not it is a bona fide gift (it must be a gift with no expectation of repayment ever) and explain that the gift did not come from unallowed sources like cash advances on a credit card, payday loan, etc.

When you make your plans to save for your down payment, do not forget that while sellers cannot help you in any way with the down payment, the seller IS permitted to provide help with closing costs up to six percent of the sale price of the home.

This is called a seller concession and must be negotiated with the home seller. The seller cannot provide you with more than six percent--anything more is considered an inducement to purchase and the loan amount is reduced dollar for dollar by the amount over six percent. That’s an important factor to know, especially when you’re negotiating the purchase of a home for the first time.

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