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Under most FHA programs, the borrower is required to make a minimum down payment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price.

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FHA Loan Articles

News and Updates for Homeowners

About FHA Loan Down Payment Sources

September 17, 2013 - FHA loans for new purchase homes require a minimum down payment, called a “minimum cash investment” in the rulebook. This down payment must come from an approved source. There are plenty of common questions asked about these approved sources--here’s a good example:

“Can I use money from a residential loan or my thrift savings towards a FHA down payment and closing costs?”

The rules that cover approved down payment sources for FHA insured mortgages are found in HUD 4155.1, Chapter Five, which starts off by explaining the down payment policy.

“Under most FHA programs, the borrower is required to make a minimum down payment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price. Additionally, the borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Funds used to cover the required minimum down payment, as well as closing costs and fees, must come from acceptable sources and must be verified and properly documented.”

For this particular question, would thrift savings account funds would be considered “acceptable sources” for the down payment and/or closing costs?

Chapter Five states that collateralized loans and thrift savings account funds are considered acceptable sources of and FHA loan down payment. But what about using funds from a thrift savings plan? FHA loan rules state:

“Up to 60% of the value of assets such as Individual Retirement Accounts (IRA), thrift savings plans, 401(k) and Keogh accounts may be included in the underwriting analysis, unless the borrower provides conclusive evidence that a higher percentage may be withdrawn, after subtracting any
  • Federal income tax, and
  • withdrawal penalties.

Notes:
  • Redemption evidence is required.
  • Evidence of liquidation is not required, unless more than 60% of the amount in the account is used.
  • The portion of the assets not used to meet closing requirements, after
  • adjusting for taxes and penalties, may be counted as reserves.”

In situations where the borrower wants to use loan funds as a down payment or closing costs, the FHA loan rules have a say in this as well:

“The borrower may obtain a loan for the total required investment, as long as satisfactory evidence is provided that the loan is fully secured by assets such as investment accounts or real property. These assets may include stocks, bonds, and real estate other than the property being purchased.”