Why Rent When You Can Own With an FHA Loan?
The down payment is the out-of-pocket investment you make when you buy your property. The required amount is generally calculated as a percentage of the purchase price, determined by the requirements of the loan. This upfront payment is essentially seen as your investment in the mortgage, since you stand to lose it if you’re unable to meet your monthly payment obligations.
Credit score, friends and family contributions, and down payment assistance programs can each affect how much you’ll need to come up with on your own.
FICO Scores and Down Payment Requirements
First-time buyers want to know how much they’re expected to save for their FHA loan down payments. For those who qualify financially as new borrowers or return borrowers, the minimum FHA mortgage down payment is 3.5%. However, that low down payment option is not available for everyone.
Those who have marginal FICO scores are required to make a 10% down payment. According to FHA home loan minimum standards, those with FICO scores between 500 and 579 are required to come up with this higher down payment. Those with FICO scores at 580 or higher technically qualify for the lowest down payment offered.
It’s best to start saving early for your down payment and to anticipate how much that payment might be. You’ll need to estimate the price range for the home you want to buy and calculate either the 3.5% (low) or 10% (high) down payment using that potential sales price as your guide.
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Down Payments Assistance Programs and Grants
Saving up for the down payment can be a major obstacle people face when trying to buy a house. It’s why so many people are never able to transition from renters into owners. Borrowers with high credit scores and low debt-to-income ratios might seem like ideal candidates for an FHA loan, but might still not have enough money saved to put down on a new home.
Down Payment Assistance (DPA) programs, sometimes referred to as grants, can provide homebuyers with funds to cover up front and closing costs when buying a house. Borrowers will need to meet the eligibility requirements of the specific program they’d like to use. Credit scores, household income, family size, and homebuyer education requirements will likely be factors.
Find a Down Payment Assistance Program in your area.
“Yes” or “No” for Down Payment Sources?
What if you can’t come up with the entire down payment on your own? Lenders will require the full amount of money as the required down payment, but friends, family, and employers can make a down payment gift to you that reduces your financial burden. That money is required to be verified by the lender as having come from an approved source.
The FHA doesn’t just list who may give such a gift–it also has rules discussing who MAY NOT provide gift funds for an FHA loan down payment. The gift donor may not be a person or entity with an interest in the sale of the property, such as the seller, real estate agent, or the builder.
FHA loan rules are specific and clear in these areas to insure fairness and to preserve the integrity of the home buying process with FHA loan funds.
More About FHA Loan Down Payments
1) Remember, the FHA does not offer down payment assistance. That doesn’t mean the agency doesn’t provide resources that can help you locate a DPA program in your area. These programs must meet adhere to federal regulations when providing down payment help to borrowers.
2) If you are concerned about your ability to credit qualify for an FHA mortgage, talk to a participating lender and ask some advice about your chances and what can help get you closer to loan approval. There’s no substitute for good credit and you’ll want to review your credit report long before you start filling out loan paperwork.
3) Your rental history can help boost your credit if you pay on time and have a pattern of doing so. But the catch is that your landlord must report this activity to the credit agencies. You’ll need a minimum of 12 months of on-time rent and utility payments; anything less can seriously hurt your chances for loan approval.