Down payment on purchase home

FHA Guidelines On Down Payment Requirements On Home Purchase

Gustan Cho Associates are mortgage brokers licensed in 48 states

FHA Guidelines On Down Payment Requirements On Home Purchase depends on the borrower’s credit scores. The Federal Housing Administration has created the FHA-insured mortgage loan programs to make home purchases affordable to Americans. FHA Loans are the most popular loan program for homebuyers, especially first-time home buyers. Under FHA guidelines on down payment home buyers can purchase homes with a 3.5% down payment. Under FHA Guidelines On Down Payment, to qualify for a 3.5% down payment, buyers need at least a 580 credit score.

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FHA Down Payment Requirements For Homebuyers Under 580 Credit Scores and Down To 500 FICO

Homebuyers with under 580 Credit Scores and down to a 500 FICO can qualify for FHA loans, but a 10% down payment is required under FHA Guidelines On Down Payment HUD, the parent of FHA, has created and implemented lenient mortgage guidelines on FHA loans than other mortgage loan programs. This is because lenders are insured by HUD in the event Borrowers default on their FHA loans. FHA loans are guaranteed against losses by the United States Federal Housing Administration in the event Borrowers default. Lenders are able to offer FHA Loans to home buyers with 3.5% down payment and with less than perfect credit.

FHA Guidelines On Down Payment And Credit Score Requirements

FHA loan guidelines allow lenders to offer borrowers low down payments and lower credit scores than conventional mortgage loans. The Federal Housing Administration insured mortgage loan program has helped millions of families become homeowners since FHA was created by Congress in 1934. The Federal Housing Administration is not a lender. HUD does not originate mortgage loans. The U.S. Department of Housing and Urban Development insures FHA loans for HUD-approved mortgage lenders.

Mortgage Options on FHA Loans

HUD has different types of loan programs on FHA loans. There are various FHA mortgage programs. The following are the various types of FHA loan programs for homebuyers:

  • First time FHA loans with little to no credit and bad credit
  • Rate and term FHA loans
  • FHA streamline loans with no income verification, no credit scores, and no appraisal
  • 80% LTV Cash-out FHA mortgage refinance loans
  • FHA 203k Streamline Rehab Loans
  • Full Standard FHA 203k Loans
  • Reverse Mortgages

See if you qualify!

HUD Guidelines On Minimum Credit Score Requirements On FHA Loans

There are minimum credit score requirements to qualify for FHA loans. Most lenders require a minimum credit score of 640 even though the minimum FHA Guidelines On Down Payment Requirements On Home Purchase is 580 for a 3.5% down payment home purchase FHA Loan and a 10% down payment on 500 credit scores. However, this is not an FHA Requirement but rather a lender overlay on credit scores. HUD Requires 580 FICO credit scores to qualify for FHA loans with a 3.5% down payment.

FHA Loans With Low Credit Scores

Most of our borrowers have credit scores below 600 FICO. The lowest credit score is 580 for 3.5% down payment home purchase FHA loans. For borrowers whose credit scores fall between 500 and 579 FICO, the minimum down payment required is 10%. Lower credit score borrowers with scores below 580 FICO  can still qualify with a 10% down payment. Borrowers with lower credit scores should contact us so we can assist in preparing to improve credit.

Owner Occupant Versus Second Homes And Investment Properties

There are three government loan programs:

  1. FHA Loans
  2. VA Loans
  3. USDA Loans

All government loans need to be owner-occupant home loans. Second-home and investment property mortgages are conventional loans and/or investment portfolio loans.

HUD Occupancy Requirements On FHA Loans

FHA mortgage loan guidelines require that the home needs to be an owner-occupied home. Second homes and investment homes do not qualify for FHA mortgages. HUD guidelines require that the property be 1 to 4 unit residential properties, single-family homes, townhomes, condos, and/or manufactured homes. As mentioned earlier, FHA guidelines require the borrower to put a down payment of 3.5% down payment. Down payment can be gifted by family members. Escrow accounts are mandatory on all government loans. The lender will collect taxes and insurance of the home every month along with principal and interest payment and pay taxes and the insurance premium directly.

Other HUD Agency Mortgage Guidelines On FHA Loans

Other HUD guidelines include borrowers who have a two-year employment history. Recent college graduates who just landed a job can qualify for FHA Loans. The time spent as a full-time college student will be counted towards the two years of employment history. Lenders prefer that the job is similar to the field of study in school. Most Lenders like to see a debt to income ratio of no greater than 43%. Again, the 43% is a Lender Overlay on DTI. Maximum debt to income ratio allowed is 46.9% DTI Front End, 56.9% DTI back end to get AUS Approval on FHA Loans. Non-Occupant Borrowers are allowed with FHA Loans.

Types Of FHA Mortgage Insurance Premium On FHA Loans

Mortgage Insurance Premium is mandatory with FHA Home Loans. Upfront mortgage insurance premium of 1.75% of the mortgage loan amount is a one-time cost and is added to the mortgage balance. There is an annual mortgage insurance premium of 0.85% for the life of a 30 year fixed rate FHA Mortgage Loan. The majority of borrowers choose the 30-year fixed-rate mortgage loan program. 15 year fixed rate mortgage loan programs are available as well. If you have any questions on FHA insured mortgage loan programs, please contact us at Gustan Cho Associates at 1-800-900-8569 or text us for us faster response. Or email us at

Mortgage Down Payment Comparisons Between FHA Versus Other Loans

With the exception of VA Mortgage Home Loans and USDA Loans, all home loan programs require down payment for a home purchase. FHA is the most popular loan program in the United States due to Down Payment For Home Purchase With FHA Loans is only 3.5%. All mortgage loans require two things:

  1. Down Payment: This needs to come from the home buyer
  2. Closing Costs: Can be covered with sellers concessions and/or lender credit

VA Loans and USDA Loans are the two mortgage loan programs that do not require down payments. However, all mortgage loans have closing costs.

Closing Costs On Home Loans

As mentioned, there are two types of costs when buying a home.

  • Down Payment on the home purchase
  • Closing Costs

The down payment needs to be sourced and documented and needs to be verified funds by the home buyer. Closing Costs can be covered with the following:

Typical Closing Costs on Home Purchase Transactions

Owner Occupant Versus Second Homes And Investment Properties

Here are examples of closing costs:

  • Title Charges
  • Appraisal Fees
  • Recording Charges
  • Pre-Paid which are upfront escrows
  • One year homeowners insurance
  • Flood Insurance if applicable
  • Appraisal Fees
  • Attorney’s Fees
  • Any other costs associated with the closing of the home loan

Most homebuyers do not have to worry about closing costs.

Down Payment For Home Purchase With FHA Loans

All down payment for home purchase with FHA Loans needs to be documented as follows:

  • HUD requires all down payments for home purchases with FHA loans to be documented 
  • FHA allows down payment for home purchase with FHA Loans to be gifted by family members and/or relatives

The down payment for a home purchase is probably the biggest challenge most first-time home buyers face once they decide to become homeowners. Many potential first-time home buyers’ main concern is how much down payment is needed. Another concern many first-time home buyers have is how much are closing costs.

Homebuyers do not need to worry too much about closing costs because there are two ways of not having to come out of pocket for closing costs and prepaid:

  1. Sellers Concessions
  2. Lender Credit

Seller Concessions For Homebuyer’s Closing Costs

The first way of covering closing costs is to ask for a seller concession towards the buyers closing costs and prepaid.

  • This can easily be done by inflating the purchase price by the closing cost and prepaid amount
  • Conventional loans allow up to 3% in seller concessions on primary owner occupant properties
  • 2% sellers concession on investment homes
  • FHA and USDA loans allow up to 6% seller concessions towards buyers closing costs and prepaid
  • VA Loans allow up to 4% seller concessions

Lenders Credit To Cover Closing Costs

The second way of covering closing costs is by lenders’ credit towards closing costs. A lender can cover most of the closing costs in the event home buyers do not get enough sellers concessions. Lenders give a lender credit by giving borrowers a higher mortgage rate in lieu of giving lenders credit towards closing costs and prepaid. Unfortunately, seller concessions can only be used for closing costs and no down payment.

What Is The Down Payment Requirements On FHA Loans

Lenders will only accept sourced down payment funding towards the down payment of the borrower’s new home.  Cash or mattress money is not allowed as the source for the down payment.  All down payment funds must be sourced and verified. Listed below are acceptable down payment sources to be used towards a residential home purchase.

Down Payment Can Come From Borrowers And Co-Borrowers Bank Accounts

Mortgage lenders require sixty days of bank statements. Two months, 60 days, of the most recent bank statements, may be used to verify savings and checking accounts information. Any large deposits over $200 dollars need to be sourced in order to be considered sourced funds. If borrowers have unsourced cash funds, it is best they deposit to the bank account and let it season for at least sixty days. Any deposits older than sixty days will not be questioned.

HUD Guidelines on Cash at Hand

Cash at hand or in a safe deposit box:

  • Cash resources are non-existent in the mortgage business
  • Under certain circumstances, cash at hand may be used if the borrower can write a detailed letter of explanation on how the cash was accumulated over what period of time
  • Also providing supporting documentation like bills of sale or receipts
  • This is extremely difficult to be accepted by the mortgage loan underwriter but the borrower can try

Retirement and Investment Accounts 

IRA & Retirement Accounts: Lenders will allow up to a 60% value of retirement accounts:

  • IRA
  • 401k accounts
  • Borrowers are allowed to secure a loan against their retirement accounts   
  • The right-hand rule is that borrowers can borrow the lesser of 60% of their retirement account or $50,000  

In general, borrowers can borrow the lesser of $50,000 or one-half of their retirement plan.

Other Liquid Assets

Securities Investment Accounts: Stocks, Bonds, Mutual Funds:

  • The lender may use the most recent monthly or quarterly statement provided by the stockbroker or financial institution managing the portfolio to verify the value of stocks and bonds
  • The borrower’s actual receipt of funds must be verified and documented


  • Mortgage lenders will allow government bonds such as the following:
  • Municipal Bonds at par price

Can Gift Funds Be Used For The Down Payment On A Home Purchase

Gift Funds:

  • Gift funds are allowed for FHA loans
  • As long as there is a gift letter signed by the donor that he or she does not expect any of the gift money back from the person receiving the gift or repayment plan

The person giving the gift needs to be the following people:

  • a person who is related to you by blood or marriage
  • Current employer or a labor union the mortgage loan borrower belongs to
  • A charitable institution like a church or a not-for-profit organization
  • Local, county,  state or federal government institution that has an implemented home buyers program that assists first time home buyers aid
  • Or assistant towards their down payment such as providing aid  to low to moderate-income families or single parents

Selling Property Or Assets For The Down Payment On A Home Purchase

Other HUD Agency Mortgage Guidelines On FHA Loans

Liquidation Of Personal Property:

Bill of sale is provided is allowed for down payment sourcing. The borrower is allowed to sell personal property. The homebuyer can use funds from the sale of assets as a down payment source: As long as the bill of sale and copy of the canceled check are provided to the mortgage underwriter, borrowers can use the proceeds from the sale of assets.

Down Payment For Home Purchase With FHA Loans: Qualified Funds

The following are allowed to be used as qualified funds as long as they can be documented:

  • Automobiles and motorcycles as well a boats
  • Recreational vehicles and trailers
  • Stamps
  • Gold
  • Silver
  • Coins
  • Memorabilia

FHA Guidelines On Down Payment On Proceeds From Sale Of Properties

The proceeds from a real estate sale are allowed. As long as the borrower can provide an executed HUD from the sale and bank statements showing the deposit into their accounts.

FHA Guidelines On Down Payment On Collateralized Funds

Funds that are collateralized by a secured asset is allowed can be used for the down payment for home purchase with FHA loans: As long as the borrower can provide the contract and agreement.

FHA Guidelines On Down Payment On Employer Contribution

The current employer can help home buyers in the following ways:

  1. Paying all or part of the employee’s closing costs and prepaid
  2. Mortgage Insurance Premium
  3. Down Payment On Home Purchase: Either partial or full down payment

Home Purchase Down Payment Requirements Depends on Individual Mortgage Programs

With the exception of VA and USDA Loans, all mortgage programs require down payment. Homebuyers find the down payment on a home purchase the biggest hurdle when it comes to a home purchase. Down Payment Requirements depend on the particular loan program. There are different down payment requirements on primary, second home, and investment properties. NON-QM Loans have different down payment requirements. Jumbo Loans and NON-QM Jumbo Mortgages have their own home purchase down payment guidelines. Most homebuyers can easily afford the new housing payment. However, coming up with the down payment is becoming a problem.

Costs Associated With Buying A Home Saving is one of the hardest disciplines for most American consumers. Most homebuyers do not have to worry about coming up with closing costs. There are two costs when it comes to buying a home: The down payment and closing costs. Most closing costs can be covered with a seller concession or a lender credit from the mortgage company. In this blog, we will discuss the individual home purchase down payment requirements.

Difference Between Down Payment Versus Closing Costs

All purchase and refinance transactions have closing costs. Most borrowers do not have to worry about coming up with closing costs. This is because closing costs can be covered with sellers’ concessions and/or lender credit. However, home buyers do have to worry about the down payment. Down payments can be gifted by a family member. Using 401k retirement accounts for the down payment is allowed. With the exception of VA and USDA Loans, all home loans require a down payment. Home Purchase Down Payment requirements vary widely depending on the type of loan program and the type of occupancy.

What Are The Minimum Down Payment Requirements On Government, Conventional, Jumbo, Non-QM Mortgages

Down Payment Requirements depend on the particular mortgage programs.

Here are the home purchase down payment requirements:

  • VA and USDA do not require down payments on home purchases
  • Both VA and USDA Loans allow 100% financing
  • FHA loans require a 3.5% down payment for borrowers with 580 FICO or higher
  • Under 580 credit scores and down to 500 FICO, FHA requires a 10% down payment
  • Fannie Mae and Freddie Mac require a 3% down payment for first-time home buyers and 5% for repeat buyers.
  • Jumbo Mortgages require 10% to 20%
  • Non-QM Loans and Bank Statement Loans require 20% to 30% down payment
  • Non-Warrantable condos require a 20% down payment
  • Condotels require a 25% down payment
  • Investment homes require a 15% to 30% down payment depending on the type of property.

FHA Guidelines On Down Payment: Hurdles With Down Payment By Home Buyers

Homebuyers who have hurdles with coming up with the down payment can use their 401k retirement accounts.

Homebuyers who have hurdles with coming up with the down payment can use their 401k retirement accounts. Homebuyers can borrower up to 60% of their 401k value. The stock market hit an all-time high at 26,000. Many home buyers would be surprised at how much their 401k has appreciated Homebuyers are allowed to get gifted funds. 100% of gift funds can be used for home purchase down payments.

Source For Down Payment On Home Purchase

Many home buyers normally use their personal earned savings or saved cash. Over 30% of home buyers use the equity from a prior home sale. Others use inheritance and/or gift funds for their home purchase. Many senior home buyers and baby boomers will use cash to purchase their homes. FHA requires a 3.5% minimum down payment on a home purchase with an FHA loan.  Fannie Mae and Freddie Mac require a three to a five percent down payment on a home purchase. To qualify for a 3% down payment conventional home purchase loan, you need to be a first-time homebuyer.

The Down Payment By Homebuyers Show Skin In The Game By Homebuyers And Less Risk For Lenders

A first-time homebuyer is a buyer who had no ownership of a home in the past three years. Otherwise, conventional loans require a 5% down payment. VA and USDA loans are the only two mortgage loan programs that do not require any down payment on a home purchase. The higher the down payment, the less the lender has risk. The lower the down payment, the higher the risk for the lender and the higher the mortgage rates.

Down Payment Assistance Program

Gustan Cho Associates offers DPA Programs throughout the country. There are grant programs where no repayment is required if the homeowner lives in the home for a certain amount of time. If the homeowner sells and/or refinances, the DPA funds need to be paid back. DPA Mortgage Loan Programs are different depending on the program, state, county, and city.