An FHA loan is a mortgage issued by FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, which require a lower minimum down payments and credit scores.

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Understanding FHA Down Payments

Among the FHA’s flexible guidelines, the FHA down payment requirements stand out. With only 3.5 percent down, you can get a loan with a credit score as low as 580. No other loan program offers this option. Here’s what you must know about FHA down payments.

Your Credit Score Determines the Down Payment Requirement

The low 3.5 percent down payment most people know about FHA loans requires a 580 or higher credit score. If you have a credit score between 500 – 579, you need a 10 percent down payment. Here’s how that differs on a $200,000 loan:

  • Borrowers with 580+ credit score – Down payment of $7,000
  • Borrowers with a 500 – 579 credit score – Down payment of $20,000
Proving your Down Payment Funds

FHA lenders must source your down payment funds. They must ensure the funds belong to you (they aren’t a loan) and that using the funds won’t pose financial difficulties.

You may use funds in almost any financial account including checking, savings, 401K, IRA, stock accounts, and other investments. You must prove ownership of the account and the funds must be seasoned.

This means you must have ownership of the funds for at least 2 months. Lenders look at the last 2 months of your financial statements. If you have any large deposits within that time, they’ll ask for further proof of the funds’ origination to prove they aren’t a loan.

If any deposits or source of funds seem ‘suspicious’ based on your income and savings patterns, lenders may ask for further documentation or tracing.

Gift Funds for FHA Loans

You may use gift funds for up to 100 percent of the down payment if you have a 619 credit score or higher and 7.5 percent of the down payment if you have a credit score between 500 – 579. Like your own funds, lenders will ask for proof of the funds’ origination. Donors must provide:

  • A gift letter – The gift letter must state your name, the reason for the gift, your relationship, the property address, and that the donor doesn’t expect repayment.
  • Bank statements – Lenders need proof of the funds by looking at the last two months’ of bank statements or investment statements. If any deposits don’t seem usual for the donor’s income and saving patterns, they may ask for further documentation.
  • Proof of the transfer – Keep a copy of the check the donor provides, the deposit ticket, and your bank statements proving the deposit.
Other Ways to Obtain FHA Down Payment Help

If gift funds aren’t an option and you don’t have the required down payment, there are many down payment assistance programs available within your local city or county.

If you have questions about FHA down payment requirements or how to get help, contact me today and I’ll help you get started.

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