FHA Loan Down Payment Requirement
FHA loans are designed to help home buyers who may have low credit scores, limited income, and very little cash to close. One of the benefits of purchasing a home with an FHA loan is the very low down payment requirement.
The FHA loan down payment requirement is 3.5% for credit scores of 580 or higher, and 10% for credit scores of 500-579.
Acceptable FHA Down Payment Sources
The following are the acceptable FHA down payment sources. You are able to use any one, or combination of these for your down payment.
Savings accounts – 100% of the savings account balance can be used
Checking accounts – 100% of the checking account balance can be used
Cash saved at home – Cash can be used towards the down payment, but the funds must be deposited into a bank account or into a title company’s escrow account first to verify that the funds exist.
401k and IRA accounts – Home buyers may use up to 60% of the balances from 401k and IRA accounts towards the down payment.
Stocks and bonds – 100% of the value of the stocks and bonds can be used, but they must be liquidated.
Proceeds from the sale of another home – The proceeds of the sale of your current home can be used towards the down payment to purchase another home.
Gift funds – Gift funds from a relative or close friend can be used for the down payment. Read [FHA Gift Funds]
Gift of equity – A gift of equity is when you are purchasing a home from a relative and they provide you with a down payment credit.
Down payment assistance and grants – There are many down payment assistance programs and grants available in every state. Home buyers will need to apply for these programs in advance. Read [FHA down payment assistance]
Rent credit from seller – If you enter into a rent to own agreement with your current landlord, some or all of your rent payments can be used towards your down payment.
Employer assistance plan – Some employers offer down payment assistance as an added benefit to their employees. FHA guidelines permit these funds to be used towards your down payment.
Commissions from sale – If you are a realtor and are purchasing a home with an FHA loan, you can apply the commission earned on the sale towards the down payment.
Can you Negotiate the FHA Loan Down Payment with the Lender?
Lenders cannot change the FHA loan down payment requirement. They are bound by the FHA Loan Requirements and do not have the authority to lower the down payment. Therefore, you would need to use gift funds, down payment assistance, or any of the other approved down payment sources referenced above.
The lender does have the ability to help with closing cost assistance. This will help to offset the funds needed to purchase a home.
Are there Zero Down Payment Mortgages?
The most popular zero down mortgages are VA loans for veterans or active military, and USDA loans for the purchase of a home in a rural area. If those loan programs are not a fit for you, then read our article on how to get an FHA loan with no money out of pocket.
When Is the FHA Loan Down Payment Needed?
Most FHA lenders will require you provide proof that you have the down payment well before closing but not at the time of application. If the down payment is coming from your savings, that should be reflected in the bank statements that you provide when you submit your loan documents. If the down payment is coming from a gift, down payment assistance, or sale of an existing home, then the down payment will come much later.