FHA Down Payment Requirement
FHA Home Loans have a minimum down payment requirement of 3.5%. This down payment percentage is one of the lowest down payments available amongst all mortgage loan programs available today. The 3.5% is the minimum down payment, however, a borrower is able to put more money down if they prefer. The down payment must come from an acceptable source of funds. The down payment cannot be borrowed or from an interested party such as the seller or realtor. The Federal Housing Administration has set forth guidance on what is considered acceptable funds.
Acceptable funds are monies that come from the borrower or gifted from a family member. Money the borrower is able to accumulate through payroll deposits is a great start! These can easily be traced through a borrower’s bank statement (especially if they have direct deposit from their employer). Being able to identify the source of the deposit is crucial for the funds to be considered acceptable. Deposits that cannot be explained or documented are considered unacceptable and will be backed out of bank account’s ending balance.
If the borrower has a 401k account or similar retirement account, the withdrawal/transfer of funds from this account to the bank account is one of the most common methods used to show acceptable funds for the minimum down payment requirement. The borrower will need to provide supporting documentation to show the withdrawal coming out of the 401k/retirement account and into the bank statement so it is properly sourced (traced).
A gift from a family member is a common form of down payment for an FHA Loan. A gift of funds must come from a family member. These funds cannot come from a friend. FHA has defined a family member as a Mother, Father, Brother, Sister, Grandfather, or Grandmother. The family member providing the gift funds is called the Gift Donor. The Gift Donor must provide a copy of their bank statement showing they have the available funds to give. A gift letter must also be signed by the Gift Donor and Borrower. Finally, the Gift Donor will wire the funds (or provide a cashier’s check) to the title company/closing attorney the day of closing.