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Some of the most frequently asked questions about making a new home purchase using an FHA guaranteed mortgage loan involve the issue of the down payment.

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FHA Loan Articles

News and Updates for Homeowners

FHA Loan Down Payment Questions

April 16, 2013 - Some of the most frequently asked questions about making a new home purchase using an FHA guaranteed mortgage loan involve the issue of the down payment.

One such question we get goes something like this:

"I am thinking about purchasing a home. If a house costs $250,000 is it possible to be approved for a home loan with no money down? If not, how much down payment is required to be approved for the loan?"

The "no money down" issue sometimes comes up because borrowers confuse the FHA loan program with the Department of Veterans Affairs loan guaranty program which features a no down payment option.

That option is unique to VA loans and does not apply for FHA mortgages, which require a "minimum cash investment" of 3.5% down. There is no specific dollar amount we can quote because the down payment is a percentage of the transaction. It's basically a percentage calculated based on the contract sales price of the home. Also, 3.5% is only a minimum down payment-borrowers are free to pay more money down, there is no prepayment penalty with VA home loans.

What can you expect from the FHA loan process? The goal of the FHA loan program is to ".provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD."

That means that the bank is responsible for processing and approving the loan, not the FHA. What are the eligibility requirements for an FHA guaranteed home loan?

According to the FHA official site: "The borrower must meet standard FHA credit qualifications. The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium. Eligible properties are one-to-four unit structures."

The down payment issue comes up repeatedly in the introductory documents for the FHA loan program and borrowers should begin saving for this down payment at least one year in advance because there are other fees and expenses which must be paid upfront as part of the loan process. Additionally, those expenses cannot be counted as part of the down payment--that is a very important thing to keep in mind when planning for your new home loan application.