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FHA Loan Down Payment

FHA Loan Down Payment

The Federal Housing Administration (FHA) has been providing mortgage insurance programs since 1934. Their mission is to make homeownership affordable for more Americans, particularly those who may not qualify for conventional loans.

One of the ways that FHA accomplishes this mission is by allowing borrowers to make a lower down payment when purchasing a home. This article will explore how an FHA loan down payment works, the benefits and limitations, and the latest updates from the government.

What is an FHA Loan Down Payment?

When you apply for an FHA loan, you’ll need to provide a down payment. The FHA requires a minimum of 3.5% of the purchase price as a down payment. For example, if you’re purchasing a home for $200,000, you would need to have a down payment of at least $7,000.

The down payment requirement is set by the FHA to reduce their risk of default. When a borrower puts down a larger down payment, they are more financially invested in the property and less likely to default on the loan. The down payment also lowers the amount of the loan, making it more affordable for borrowers.

Benefits of an FHA Loan Down Payment

The biggest benefit of an FHA loan down payment is that it allows borrowers to get into a home with a lower upfront cost. This can be particularly helpful for first-time homebuyers who may not have a lot of cash saved up. Additionally, some borrowers may have a lower credit score or higher debt-to-income ratio, which can make it difficult to qualify for a conventional loan. The FHA loan down payment requirement is more forgiving for these borrowers.

Another benefit of an FHA loan down payment is that it can be gifted from a family member or employer. This can be a huge help for borrowers who don’t have the funds to put down a down payment on their own. However, there are restrictions on who can provide the gift and how it can be used.

Limitations of an FHA Loan Down Payment

There are some limitations to an FHA loan down payment that borrowers should be aware of. First, the down payment must come from an acceptable source. Acceptable sources include savings, investments, or a gift from a family member or employer. If the down payment is coming from an unknown source, the lender may not accept it.

Another limitation is that the borrower will need to pay mortgage insurance. The FHA charges an upfront mortgage insurance premium (MIP) that is 1.75% of the loan amount. This fee can be rolled into the loan, but it will increase the amount of the monthly mortgage payment. Additionally, borrowers will need to pay an annual mortgage insurance premium, which is based on the loan-to-value ratio of the property.

Recent Updates on FHA Loan Down Payments

The required down payment for an FHA loan has not changed in recent years, but there have been changes to mortgage insurance premiums. In January 2015, the FHA reduced annual mortgage insurance premiums by 50 basis points. This change made FHA loans more affordable for borrowers, particularly for those with lower credit scores.

In January 2017, the FHA further reduced annual mortgage insurance premiums by 25 basis points. This change was designed to help borrowers save more money on their monthly mortgage payments. However, in January 2018, the FHA announced that it would suspend the reduction, citing concerns about the financial stability of the FHA’s insurance fund. This means that the annual mortgage insurance premiums will remain at their current levels until further notice.

Additional Considerations

When deciding whether an FHA loan down payment is right for you, it’s important to consider all of the costs associated with homeownership. In addition to the down payment and mortgage insurance, borrowers will need to pay closing costs, property taxes, and homeowner’s insurance.

Borrowers should also consider how long they plan to stay in their home. If they plan to move in a few years, an FHA loan down payment could be a smart choice. However, if they plan to stay in their home long-term, they may want to consider a conventional loan with a larger down payment to save money on the mortgage insurance.

Conclusion

An FHA loan down payment can be a smart choice for borrowers who are looking to purchase a home with a lower upfront cost. However, it’s important to understand the benefits and limitations of an FHA loan before making a decision. Borrowers should consider all of the costs associated with homeownership and how long they plan to stay in their home. With careful consideration, an FHA loan down payment can help more Americans achieve the dream of homeownership.


Guide to FHA Loans

If you are in the market for a home, you may have heard about FHA loans.  The Federal Housing Authority insures loans that are made by private lenders, and especially for buyers with challenging credit histories, an FHA loan can make owning a home affordable and easy.  The FHA loan down payment is quite low, and the Federal Housing Authority will even pay up to 6% for closing costs if you qualify.  This guide will help you to understand who qualifies for an FHA loan down payment of just 3.5%, and will show you how to begin the process of applying for an FHA loan.

Qualifying For FHA Loans

Until a few years ago, it was very easy for even low-income homebuyers to find mortgage options that would allow them to have an affordable monthly payment and down payment.  Today, as mortgage lenders’ purse strings have tightened, it can be difficult to qualify for a private mortgage if your credit is even slightly bruised—and almost impossible if there’s a bankruptcy on your credit report.

FHA loans make it possible for people with low FICO scores to get a mortgage.  If you have a credit report that shows previous bad marks, even if you have a bankruptcy (as long as it was more than two years ago), you can qualify for an FHA loan down payment of 3.5 percent with a federally-backed loan.

Talking to a lender who originates FHA loans can explain the terms of an FHA loan in greater detail, and help you decide whether an FHA loan is right for you.

Down Payment/Closing Costs

If you have qualified for an FHA loan down payment of 3.5%, you may also be able to qualify to have your closing costs paid by the Federal Housing Authority.  This allows many low to moderate income homebuyers to make their first home purchase.

You may wish to shop around for loan rates.  While your FHA loan down payment will be set at a low percentage rate, each lender still determines its own interest rates and terms.  You will want to make sure that the rate you have been offered gives you a reasonable monthly payment that you can reasonably expect to afford to pay for the term of the loan.

Down Payment Assistance

If you are looking for a mortgage with an FHA loan down payment, you may have heard of some programs that would give assistance with down payments.  These programs were deemed to be scams by the Department of Housing and Urban Development several years ago.  The programs were not really gift assistance, but rolled the cost of the down payment into the housing loan itself.

If you are a veteran of the armed services, you may be able to find a mortgage that has a lower-than-FHA loan down payment.  VA loans actually allow you to buy a home with zero money down and assistance in paying closing costs.  If you think you may qualify for a VA loan, talk to your local VA office for more details.