FHA Mortgage 101: Down Payment
By: Rosemary Rugnetta
Many people feel that they are left out of the home buying market due to the required down payment necessary to close the transaction. This is not necessarily the case when purchasers choose an FHA mortgage. FHA has several programs available for home buyers that help significantly to reduce the amount of down payment requirements. With the current cost of homes down, it is a great time to look into FHA mortgage down payment requirements and the various programs they have available.
FHA 203(b) Program
The most widely known and used FHA mortgage is the 203(b) program. This FHA program requires a borrower to have a down payment of 3.5% of the purchase price. With this program, a borrower can also use gift funds from external sources such as family, friends, employer and labor union for 100% of the down payment as long as the funds do not have to be repaid. If a home buyer is purchasing a home that is owned by a family member, this program also allows the owner, who is a relative, to give equity credit as a gift for the down payment. For instance, a parent owns a home that they wish to sell to their grown child, The sale of the home is $100,000 and they want to give a gift of equity for $10,000. The child will now only need a mortgage for $90,000 and their down payment is covered. In all instances, the appropriate paperwork will need to be completed and guidelines followed.
FHA Good Neighbor Next Door Program
FHA is interested in revitalizing neighborhoods, saving homes and assisting home owners in purchasing homes. With this in mind, FHA has developed the Good Neighbor Next Door program. This program is available for law enforcement officers, pre-kindergarten through 12th grade teachers, firefighters and emergency medical technicians. Under this program, the home must be in a HUD designated revitalized community located near the home buyer’s place of employment. The home buyer will get a 50% discount from the list price of the home in return for their commitment to live in the property for a minimum of 36 months as their sole residence. Property this applies to is HUD acquired single family homes, condominiums and town houses. Another perk to this program is that together with an FHA mortgage, the required down payment is only $100 and the closing costs may also be financed. Say, for instance, HUD lists a home for $100,000. If you qualify for the Good Neighbor Next Door Program, you can purchase the home for $50,000 provided you agree to live in the home for 3 years. With an FHA mortgage, your out of pocket expense will only be $100 for the down payment.
Down Payment Assistance Programs (DAP)
FHA allows down payment assistance through secondary financing providers. Many states, counties and cities have funds set aside to provide second loans for down payment assistance to supplement an FHA first loan. These community housing initiatives vary from state to state and county to county and change every year. The amount of assistance can be anything from under $5,000 to $20,000 and above. Most of the time, these second loans do not have to be repaid if the borrower lives in the home for a period of 10 to 20 years depending on the program. Although receiving funds from a down payment assistance programs depends on income, the required income can be quite high depending upon the number of children and/or dependents in the household.
It is FHA’s goal to assist home buyers when purchasing homes, to continuously revitalized neighborhoods and to make the home buying experience as easy as possible. Anyone interested in purchasing a home with as little money as possible, should always look into FHA mortgage programs and learn more about FHA Mortgage 101 Down Payment.