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It’s important to know that you will definitely need to budget for the FHA loan down payment separately from your other loan expenses. Loan fees cannot be used toward the borrower’s minimum required investment.

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What Do I Need to Know About FHA Loan Down Payments?

What Do I Need to Know About FHA Loan Down Payments?
August 25, 2017 - What do you need to know about FHA loan down payment requirements? For a start, it’s important to know that you will definitely need to budget for the down payment separately from your other loan expenses-as we’ll discover below, loan fees cannot be used toward the borrower’s minimum required investment.

There is an old idea regarding the necessity of a home loan down payment. The idea is generally that when a borrower invests money up front, they have a more lasting commitment to making on-time payments and remaining in good standing on the FHA mortgage. While that idea isn’t discussed in the FHA loan handbook, HUD 4000.1, the handbook does explain the hows and whys of your down payment requirements.

All FHA loans for new purchases must include an FHA loan down payment of 3.5% of what is known “in the business” as the adjusted value of the home. The minimum down payment is just that-you are free to pay more than the minimum, and in some cases more may be required. When does that apply?

When credit score issues make it harder for the loan officer to justify approving the loan, a larger FHA loan down payment may be required. FHA loan standards require a 10% down payment when the borrower’s FICO scores are between 500 and 579. Lender standards may also apply beyond these minimum FICO score rules.

Where can your down payment come from? Some borrowers may assume that if they simply provide the money, no questions will be asked. But this isn’t the case-FHA down payment funds must come from approved sources.

For example, payday loans or other “non-collateralized” loans such as credit card cash advances must not be used to provide down payment money. If some or all of your down payment funds come as a gift or a grant, these sources must be approved by the lender and meet FHA requirements.

Down payment assistance, gift funds, or similar help cannot be provided from anyone who has a financial stake in the outcome of the transaction. That includes the seller, your participating lender, etc. FHA loan rules state that the down payment money you provide must be verified by the lender regardless of the source.

In cases where the borrower brings the full amount of down payment funds from her own resources, the lender will still require the money to come from approved sources such as (but not limited to) cash saved at home, savings plans, cashed-in investments, or checking account funds.

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