Seriously, is there a way to bypass the down payment when looking to finance your dream home with an FHA loan?
Well, there is a bit of good news: getting an FHA loan with no down payment is possible; however, it doesn’t involve FHA waiving it off.
In this article, we will provide a better understanding of FHA’s down payment policies and all the no-money-down options available to you.
Ready to learn some secrets? Grab a pen and note and let’s get right to it.
What is an FHA Loan?
An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). These loans come with some unique benefits, like flexible requirements and qualifications and competitive rates.
You don’t need perfect credit scores or income levels to be approved for an FHA loan, which can make it ideal for first-time homebuyers or those with limited resources.
However, there are strict requirements that determine your eligibility for pre-approval and how much you qualify for.
How to Qualify for an FHA Loan
The FHA loan requirement is in two parts; the homeowner requirements and the property requirements, also usually referred to as the FHA loan inspection requirements.
The homeowner requirements are the basis for your pre-approval, after which you must present a property for the inspection requirements.
Here’s what the FHA looks for under the two criteria:
- For the homeowner requirement, the FHA requires a credit score of 500 and above, a down payment of 3.5% or 10% depending on your credit score, and a debt-to-income ratio of less than 41%.
- For the property requirements, FHA insists that the house must be safe, secure, and in good condition, be located in a suitable neighborhood, and must pass an FHA-approved appraisal that evaluates the condition and market price.
If you meet these requirements, an FHA loan is definitely worth considering as your mortgage option. Keep in mind that some FHA loans like the 203k loan and refinancing loan may have additional requirements.
FHA’s Down Payment Requirements
As already indicated, FHA is not a 100% financed loan and does require a down payment which is usually pegged to your credit score.
Here’s how FHA decides how much you must pay as a down payment on your loan:
- If your credit score is 580 or higher, FHA requires a down payment of at least 3.5%.
- If your credit score is between 500 and 579, FHA requires a down payment of around 10%.
How to Get an FHA Loan With no Down Payment
So, is it possible to get an FHA loan with no money down? Yes, you do have two possible options.
While FHA or your lender will not waive the required down payment, the money does not necessarily have to come from you.
Here are the two possible ways you can go about it:
- Down payment assistance programs. These programs are designed to help low-to-moderate-income borrowers with their down payment and closing costs. Some offer grants that do not need to be repaid, while others offer loans that have low-interest rates and deferred payments.
- FHA gift funds – FHA allows for your down payment to be paid using a gift from those close to you or approved sources. If you don’t have anyone close to you to gift you funds, then look into the down payment assistance programs offered in your area.
Zero Down Payment FHA Loan Requirements
Each of the above zero down payment options has specific requirements you must meet. We go over them below to give you a good grasp of what to expect from these solutions.
Down Payment Assistance Programs
These programs are almost always geared toward first-time home buyers.
However, many programs will qualify you as a first-time home buyer if you haven’t been a homeowner for the last 3 years.
Apart from your homeowner status, programs will also determine your eligibility based on your credit and income. It must be clear that you cannot pay the down payment without assistance.
If you find yourself, requiring assistance on your down payments in any of these areas, reach out and we’ll help you secure the option per your financial situation.
FHA Gift Fund
FHA allows you to pay your down payment using a gift. However, the sources of the gift are restricted by the FHA and come with some requirements.
For example, you will need to get an FHA gift letter that makes it clear that the giver of the gift intended it as such with no expectation of it being paid back.
Additionally, beyond ensuring your gift comes from an approved source, you need to show documented evidence that your gift left your donor’s account and has entered your account.
The approved sources of a gift are:
- Your relative
- Your close friend
- Your employer
- A charitable organization
Frequently Asked Questions
Can you do FHA with no money down?
FHA loans require a down payment, but you can have the down payment amount covered by a gift or down payment assistance program.
What is the lowest down payment for an FHA Loan?
The lowest down payment for an FHA loan is 3.5% of the sale price. This amount can be paid in cash or by using eligible gift funds and is only available if you meet the credit score requirement of not less than 580.
If you have a credit score falls between 500 and 580, the lowest down payment required from you will be 10% of the sale price.
What will disqualify you from an FHA Loan?
The most important requirements for an FHA loan are a good credit score and history.
If your credit score is below 580, you may still be able to get approved for an FHA loan, but it might come with more restrictions.
In addition to credit score requirements, lenders will also look at your employment history and income level. That is, you must have a steady employment record and proof of income to qualify for an FHA loan.
It’s also important that you don’t have too much debt or too many late payments on your credit report. These can all disqualify you from getting an FHA loan.
Similarly, if you’ve had a bankruptcy or foreclosure in the past three years, this could prove to be an obstacle to getting approved as well.
How can you buy a house if you don’t have enough down payment?
Buying a house without enough down payment can seem daunting, but it doesn’t have to be. With an FHA loan, you can buy a home with as little as 3.5% down.
If the 3.5% down payment is still out of your reach, you may explore down payment assistance programs or ask those close to you to help with a monetary gift to pay for the down deposit.
So, Should You Get an FHA Loan Without Paying the Down Deposit?
If the option is getting a relative to pitch in on your down payment cost with a gift fund. Then, absolutely, yes!
The other option, however, needs thinking over and finding the right down payment assistance program to suit your financial situation.
Purchasing a house is a long and involving process, especially with an FHA loan, and you deserve any help you can get along the way, including the helping hand we’re offering.
We exist to help you find the best loans and financing options for your dream house and we’d be happy to help with any of this.
Have any questions? Just give us a call.
