FHA Home Loan Down Payment Rules You Need to Know (2024)

FAQs

FHA Home Loan Down Payment Rules You Need to Know? ›

The loan must be for your primary residence. You must have a credit score of at least 580 (500 if putting 10 percent down). You must make a minimum down payment of 3.5 percent (with at least a 580 credit score). Your back-end debt-to-income ratio must be no more than 43 percent (50 percent in some cases).

The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.

FHA will accept cash from savings and checking accounts, cash saved at home, private savings club finds and other types of accounts. Other types of funds are also allowed, including savings bonds, IRAs and 401K accounts, investments, gift funds, and the money from the sale of personal property.

Conventional mortgage lenders and FHA mortgage lenders forbid the use of personal loans as a down payment for a home. If you were to take out a personal to use as a down payment, you'd be on the hook for two debts — the mortgage payments and repayments for the personal loan.

Either the seller will have to tend to these repairs or the buyer must pursue alternative funding options, such as an FHA 203(k) Loan. Common issues that may result in a failed inspection include: Heating, plumbing, or electrical issues. Leaking, damaged, or inadequate roofing.

There are three popular reasons – bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs of a home.

FHA loans require a minimum 3.5 percent down payment for borrowers with a credit score of 580 or more. Borrowers with a credit score of 500 to 579 need to put 10 percent down. Conventional conforming mortgages only require 3 percent down, and VA and USDA loans require no down payment.

Mortgage lenders need bank statements to ensure you can afford the down payment, closing costs and your monthly mortgage payment. Lenders use all types of documents to verify the amount you have saved and the source of that money. This includes pay stubs, gift letters, tax returns, and bank statements.

Cash on Hand

Money that you've saved at home is another acceptable source of FHA down payment funds, in most cases. The official program handbook defines “cash on hand” as being cash “held by the Borrower outside of a financial institution.” In other words, it's money you have that's not sitting in a bank.

You don't need to put 20 percent down to get a mortgage — some mortgages don't even require a down payment. You can get a conventional mortgage with 3 percent down, but with anything less than 20 percent, you'll have to pay mortgage insurance. Making a larger down payment can get you a lower interest rate.

Can I use cash as a down payment? ›

The answer is YES, but you can't just show up with stacks of cash to buy your house. There's a little bit of a process. Most banks (probably 99% of banks) are going to require that you season that money.

Pledged-Asset Mortgage

If the borrower has $20,000 in stocks or investments, they can be pledged to the bank in exchange for the down payment. The borrower retains ownership of the assets and continues to earn and report interest or capital gains on those assets.

If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.

The FHA 6-month employment rule typically refers to the guideline that borrowers should have a consistent employment record for the six months preceding the loan application, including self-employment.

A second FHA loan may be allowable for homebuyers who meet these qualifying criteria: You're relocating for a new job and need a new primary residence. The new home is more than 100 miles away from your current FHA-financed home. You're getting a divorce and you intend to purchase a new home in your name only.

The property needs to be free of known hazards that affect health and safety, the home's use, or may affect the structural soundness of the house and its marketability. These include, but are not limited to: Toxic chemicals. Radioactive materials.

If you've been through foreclosure in the last three years, or bankruptcy in the last two, you will not meet FHA qualifications and are not a candidate for an FHA loan. To qualify for the 3.5% down payment, your credit score will need to be at least 580.

The largest concern sellers have with FHA loans is the appraisal/inspection process. FHA loans have the reputation of having strict requirements for appraisals and inspections. The FHA has what they call 'Minimum Property Requirements,' if a property doesn't meet even one of them, financing falls through.

Health and safety issues that can halt FHA approval

They look for hazardous building materials and finishes that are known to cause health problems in humans. This can include lead paint and asbestos in older homes. Appraisers also look for signs of mold.