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DOWNPAYMENT

How can FHA help me buy a home?

FHA mortgages lenders offer many benefits and protections that only come with FHA:

  • Lower Down Payment: FHA loans have a low 3.5% downpayment and that money can come from a family member, employer or charitable organization as a gift. conventional mortgage lenders do not allow this.
  • Easier to Qualify: Because FHA insures your FHA mortgages lenders are more willing to give you loan terms that make it easier for you to qualify.
  • Less than Perfect Credit: You don’t have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.
  • Costs Less: FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.

How do I calculate the FHA Minimum Down payment amount for an FHA purchase transaction?

The maximum mortgage amount that FHA will insure on a purchase transaction is calculated by multiplying the appropriate Loan-to-Value (LTV) 96.5% percent by the Adjusted Value. For purchase transactions, the Adjusted Value is the lesser of:

  1. Purchase price less any inducements to purchase; or
  2.  The Property Value.  

For FHA mortgage purchase transactions, the maximum LTV is 96.5 percent of the Adjusted Value.  In order for FHA to insure this maximum FHA mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.  Most FHA mortgage insurance programs require the payment of Upfront Mortgage Insurance Premium (UFMIP), which may be financed into the mortgage.  The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and LTV limits.   The total mortgage amount may be increased by the financed UFMIP amount.  The maximum mortgage amount may not exceed the Nationwide Mortgage Limit for the area. 

The maximum LTV percentage available may be influenced by the particular mortgage insurance program and the transaction type. 

FHA DOWN PAYMENT INFORMATION LINKS 

How can a homebuyer get downpayment or closing cost assistance?HUD has no direct grant programs for downpayment or closing cost assistance. However, HUD does provide funding to state and local governments for this purpose. To find out what programs you may qualify for, please contact your city, county or state

What is the American Dream Down Payment Initiative?The American Dream Downpayment Initiative (ADDI) provides downpayment, closing costs, and rehabilitation assistance to eligible individuals through grant funding administered by local housing agencies that receive HOME funds from HUD. To be eligible

Is it acceptable to get a loan for the downpayment/Minimum Required Investment (MRI)?Collateralized Loans are an acceptable source for the Borrower’s Minimum Required Investment (MRI) to obtain FHA-insured financing. A Collateralized Loan is a loan that is fully secured by a financial asset of the Borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property. These assets may include stocks, bonds, and real estate other than the property being purchased. Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset, do not require consideration of repayment for qualifying purposes. The Mortgagee must reduce the amount of the corresponding asset by the amount of the collateralized loan. Only an independent third party may provide the borrowed funds for collateralized loans. The seller, real estate agent or broker, lender, or other Interested Party may not provide such funds. Unsecured loans such as, cash advances on credit cards and borrowing against Personal Property are not acceptable sources for the Borrower’s Minimum Required Investment (MRI). Personal Property refers to tangible property, other than Real Property, such as cars, recreational vehicles, stamps, coins or other collectibles household goods and furniture. The Mortgagee must verify and document the existence of the Borrower’s assets used to collateralize the loan, the promissory Note securing the asset, and the loan proceeds. Any loan of the Borrower’s Minimum Required Investment (MRI) must also comply with the additional requirements set forth in Source Requirements for the Borrower’s MRI (see 4000.1:II.A.4.d.ii or 4000.1:II.A.5.c.ii). For additional information see Handbook 4000.1 II.A.4.d.iii.(K) or II.A.5.c.iii.(K) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh  

How can FHA help me buy a home?. Low Down Payment: FHA loans have a low 3.5% downpayment and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this. Costs Less: FHA loans have competitive interest

Who is insured by FHA Mortgage Insurance and what are the benefits? monthly and added to the borrower’s mortgage payment.  The amount and duration of payment is based on the loan type, loan term, and loan amount to property value ratio.  Low Down Payment: FHA loans have a low 3.5% downpayment.

What does FHA offer to military veterans?/talk_to_a_housing_counselor  or by calling 1-800-569-4287.  There are also many local and State government programs available that use HUD and/or non-HUD funds to provide grants for the downpayment or to help pay closing costs. To find out what programs.

Are there FHA programs available for single parents?://www.hud.gov/ll/code/llslcrit.cfm There are also many local and State government programs available that use HUD and/or non-HUD funds to provide grants for the downpayment or to help pay closing costs. To find out what programs.

Which HUD/FHA mortgages are exempted from the rule? Why? Which category of QM will they fall into?(a)(3)(V)(A) 6. Extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008 – 12 CFR 1026.43(a)(3)(vi) 7. Downpayment Assistance through Secondary Financing Provider made pursuant.

How do I calculate the loan amount for a mortgage under the Good Neighbor Next Door program? costs (including prepaids) and real estate broker fees, and make a downpayment of only one hundred dollars ($100). A buyer using a financing option other than an FHA mortgage must comply with the terms and conditions of the selected mortgage.

Does a Nonprofit Instrumentality of Government require FHA approval to participate in FHA’s Single Family nonprofit programs?Nonprofit Instrumentalities of Government (NPIOG) require FHA approval and placement on the HUD Nonprofit Roster to participate in FHA’s Single Family nonprofit programs.   A NPIOG refers to a 501(c)(3) organization that was established by a governmental body or with governmental approval or under special law to serve a particular public purpose or designated as an instrumentality by law (statute or court opinion). FHA requires the unit of government that established the nonprofit to exercise Organizational Control, Operational Control or Financial Control of the nonprofit in its entirety or, at minimum, the specific homebuyer assistance program that is using FHA’s credit enhancement.   Organizational Control refers to the majority of the governing board and/or Principal Officers that are named or approved by governmental body/officials.   Operational Control refers to the requirement that the government body approves all major decisions and/or expenditures.   Financial Control refers to the requirement that the government body provides funds through direct appropriations, grants, or Loans, with related controls applicable to all activities of the Entity.   FHA may approve an NPIOG to provide secondary financing for as much as 100 percent of the Borrower’s Minimum Required Investment (MRI). If approved, FHA will issue the NPIOG an approval letter, and this approval will be reflected on the FHA Nonprofit Organization Roster and in FHA Connection (FHAC). Interested Parties should check the Roster to ensure the approval status of an NPIOG.   HUD-approved NPIOGs will be included on HUD’s Nonprofit Roster at https://entp.hud.gov/idapp/html/f17npdata.cfm   NOTE: FHA approval and placement on the HUD Nonprofit Roster is not required for an Instrumentality of Government, provided it is not organized as a 501(c)(3) nonprofit.   For additional information see Handbook 4000.1 I.B.4. at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh   The  FHA-Approved Nonprofits web page is available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/np.

What FHA Single Family activities require approval for nonprofits to participate?FHA requires nonprofits and nonprofit instrumentalities of government to obtain approval and be placed on the HUD Nonprofit Roster to participate in FHA’s Single Family nonprofit programs.   FHA approval and placement on the HUD Nonprofit Roster are not required for federal, state, or local government agencies or their instrumentalities, provided those Entities are not organized as 501(c)(3) nonprofits.   HUD Homes HUD-approved Nonprofits are permitted to: purchase homes at a discount from HUD; and  purchase homes from HUD, without a discount, during the exclusive listing period for owner-occupant purchasers. FHA Mortgagor HUD-approved nonprofits are eligible for the same FHA-insured financing as owner occupants. After approval, nonprofits are still required to obtain credit qualification from a Mortgagee for each Mortgage originated.   Secondary Financing HUD-approved nonprofits may provide secondary financing assistance to homebuyers utilizing FHA insurance on a first Mortgage when that assistance is secured with a second Mortgage or lien.   NOTE:  Section 115 Entities, as identified in Section 115 of the Internal Revenue Code, do not require approval to participate in FHA’s Nonprofit Secondary Financing program but must meet the eligibility and application requirements for the HUD Homes and FHA Mortgagor programs.   For additional information see Handbook 4000.1 I.B.4. at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh   The  FHA-approved Nonprofits web page is available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/np.

Can fees paid by a borrower outside of closing be included as part of the Minimum Required Investment?Closing costs, prepaid items and other fees may not be applied towards the Borrower’s Minimum Required Investment (MRI).  The Mortgagee is not permitted to use closing costs to help the Borrower meet the MRI.   For additional information see Handbook 4000.1  II.A.4.d.i; II.A.5.c.i. & II.A.6.a.x at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh  .

What is meant by “held by the Governmental Entity” as it relates to Secondary Financing?“Held by the Governmental Entity” means that the governmental entity must establish legal ownership of the secondary financing.  Since legal ownership is an issue of state law, governmental entities must consult legal counsel regarding any requirements of establishing legal ownership.   For more information regarding nonprofits assisting governmental entities in providing secondary financing and secondary financing requirements refer to Handbook 4000.1 II.A.4.d.iii.(J)(1) or II.A.5.c.iii.(J)(1) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

Do nonprofits assisting with a Governmental Entity’s secondary financing assistance program require FHA approval?When a Governmental Entity uses a nonprofit to assist in the operation of the Governmental Entity’s secondary financing assistance programs, FHA approval and placement on the HUD Nonprofit Roster are not required so long as there is a documented agreement indicating: (1) the functions performed include the Governmental Entity’s secondary financing program, and (2) the secondary financing legal documents (e.g., Note and deed of trust) name the Governmental Entity as the Mortgagee.   Governmental Entities that have nonprofits close the secondary financing in the name of the nonprofit must verify that the nonprofit is both FHA-approved and on the HUD Nonprofit Roster. For additional guidance and clarification on the provision of down payment assistance through secondary financing please refer to HUD’s Interpretive Rule, Docket No. FR-5679-N-01, at http://portal.hud.gov/hudportal/documents/huddoc?id=5679N01FHAMinCaInvesInter.pdf   The HUD Nonprofit Roster is available at https://entp.hud.gov/idapp/html/f17npdata.cfm    For additional information see Handbook 4000.1 II.A.4.d.iii.(J)(1)(b); II.A.5.c.iii.(J)(1)(b); I.B.4.a.ii; and I.B.4.a.iii.(B) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh   

What is the minimum down payment requirement for FHA?The maximum mortgage amount that FHA will insure on a specific purchase is calculated by multiplying the appropriate Loan-to-Value (LTV) percentage by the Adjusted Value.  In order for FHA to insure this maximum mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.   MRI refers to the Borrower’s contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the Adjusted Value of the property.  Total Required Investment refers to the amount the Borrower must contribute to the transaction including the Borrower’s down payment and the Borrower-paid transaction costs. The Total Required Investment includes the MRI.  For additional information see Handbook 4000.1:II.A.2.a.iv. and II.A.2.c.i-ii available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

How do I calculate the loan amount for an FHA purchase transaction?The maximum mortgage amount that FHA will insure on a purchase transaction is calculated by multiplying the appropriate Loan-to-Value (LTV) percentage by the Adjusted Value.  For purchase transactions, the Adjusted Value is the lesser of: •     purchase price less any inducements to purchase; or •     the Property Value.   For purchase transactions, the maximum LTV is 96.5 percent of the Adjusted Value.  In order for FHA to insure this maximum mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.  Most FHA mortgage insurance programs require the payment of Upfront Mortgage Insurance Premium (UFMIP), which may be financed into the mortgage.  The UFMIP is not considered when calculating the area-based Nationwide Mortgage Limits and LTV limits.   The total mortgage amount may be increased by the financed UFMIP amount.  The maximum mortgage amount may not exceed the Nationwide Mortgage Limit for the area.  The maximum LTV percentage available may be influenced by the particular mortgage insurance program and the transaction type.  For additional information see Handbook 4000.1 II.A.2.b.i-ii; II.A.2.e.i.(A)  at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

How should nonprofit secondary financing information be entered in FHAC?Secondary financing that will close in the name of the nonprofit and be held by a governmental entity must be made by a HUD-approved nonprofit.  The lender must enter information on HUD-approved nonprofits into FHA Connection (FHAC) in accordance with the FHA Connection Guide.  If there is more than one nonprofit, enter information on all nonprofits.    Nonprofits assisting a governmental entity in the operation of its secondary financing programs must have HUD approval and placement on the Nonprofit Organization Roster unless there is a documented agreement that:  the functions performed are limited to the governmental entity’s secondary financing program; and  the secondary financing legal documents (Note and Deed of Trust) name the governmental entity as the mortgagee.     The Nonprofit Organization Roster is available at https://entp.hud.gov/idapp/html/f17npdata.cfm    The FHA Connection Guide is available at https://entp.hud.gov/clas/index.cfm   For additional information regarding nonprofits see Handbook 4000.1 II.A.4.d.iii.(J)(1)-(2); II.A.5.c.iii.(J)(1)-(2) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh  

Where can I find policy governing rent credit?Rent Credits refer to the amount of the rental payment that exceeds the appraiser’s estimate of fair market rent. The Mortgagee may use the cumulative amount of rental payments that exceeds the appraiser’s estimate of fair market rent towards the Borrower’s Minimum Required Investment (MRI).  The Mortgagee must obtain: • the rent with option to purchase agreement,  • the appraiser’s estimate of market rent, and  • evidence of receipt of payments.    Rent may be an inducement to purchase when the sales agreement reveals that the Borrower has been living in the property rent-free or has an agreement to occupy the property at a rental amount considerably below fair market rent.  Rent below fair market is not considered an inducement to purchase when:  • a builder fails to deliver a property at an agreed-upon time, and permits the Borrower to occupy an existing or other unit for less than market rent until construction is complete or • for Borrowers who meet the Identity-of-Interest exception for Family Members.    For additional information see Handbook 4000.1 II.A.4.d.iii.(H)(3); II.A.4.d.iii.(T); II.A.5.c.iii.(H)(3); II.A.5.c.iii.(T) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

What are the requirements regarding real estate tax credits to be received by a borrower at closing?Where real estate taxes are paid in arrears, the seller’s real estate tax credit may be used to meet the Borrower’s Minimum Required Investment (MRI), if the Mortgagee documents that the Borrower had sufficient assets to meet the MRI and the Borrower paid closing costs at the time of underwriting. This permits the Borrower to bring a portion of their MRI to the closing and combine that portion with the real estate tax credit for their total MRI.     For additional information see Handbook 4000.1 II.A.4.d.i.(B)(2)(j) or II.A.5.c.i.(B)(2)(j) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh

What are the down payment requirements when purchasing a property using FHA-insured financing?The borrower must make a minimum required investment (MRI) of at least 3.5 percent of the adjusted value of the property.  MRI refers to the borrower’s contribution in cash or its equivalent required by Section 203(b)(9) of the National Housing Act, which represents at least 3.5 percent of the adjusted value of the property.    The Mortgagee is not permitted to use closing costs to help the borrower meet the MRI.  Premium pricing may be used to pay a borrower’s actual closing costs and/or prepaid items.  For additional information see Handbook 4000.1 II.A.2.a.iv; II.A.2.c.ii; II.A.4.d.i.(B)(2)(h); II.A.5.c.i.(B)(2)(h); II.A.6.a.x available at  http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

How do I document the value of personal property sold for funds to close?Borrowers may sell Personal Property to obtain cash for closing.  Personal Property refers to tangible property, other than real property, such as cars, recreational vehicles, stamps, coins or other collectibles.  The Mortgagee must obtain a satisfactory estimate of the value of the item, a copy of the bill of sale, evidence of receipt, and deposit of proceeds. A value estimate may take the form of a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified appraiser with no financial interest in the mortgage transaction.  The lesser of the estimated value or actual sales price must be used when determining the sufficiency of assets to close.  For additional information see Handbook 4000.1 II.A.4.d.iii.(N) or II.A.5.c.iii.(N) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

Does FHA allow borrowers to use equity resulting from a trade of real property toward the cash investment?Trade Equity refers to when a Borrower trades their real property to the seller as part of the cash investment.    The amount of the Borrower’s equity contribution is determined by:  • using the lesser of the property’s appraised value or sales price; and  • subtracting all liens against the property being traded, along with any real estate commission.    If the property being traded has an FHA-insured mortgage, assumption processing requirements and restrictions apply.    The Mortgagee must obtain a residential appraisal report complying with FHA appraisal policy to determine the property’s value and must also obtain the Settlement Statement or similar legal document to document the sale of the property.    For additional information see Handbook 4000.1 II.A.4.d.iii.(S) or II.A.5.c.iii.(S) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

Can gift funds come from the seller, lender or other interested party?Gifts may be provided by:  • the Borrower’s Family Member;  • the Borrower’s employer or labor union;  • a close friend with a clearly defined and documented interest in the Borrower;  • a charitable organization;  • a governmental agency or public Entity that has a program providing homeownership assistance to low- or moderate- income families or first-time homebuyers.   The Mortgagee may only permit the Borrower’s Minimum Required Investment (MRI) to be provided by a source permissible under Section 203(b)(9)(C) of the National Housing Act, which means the funds for the Borrower’s MRI must not come from:  (1) the seller of the property;  (2) any other person or Entity who financially benefits from the transaction (directly or indirectly); or  (3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.   While additional funds to close may be provided by one of these sources if permitted under the relevant source of funds requirements above, none of the Borrower’s MRI may come from these sources. The Mortgagee must document permissible sources for the full MRI in accordance with special requirements noted above.   Additionally, in accordance with HUD’s Interpretive Rule, Docket No. FR-5679-N-01, HUD does not interpret Section 203(b)(9)(C) of the National Housing Act to prohibit Governmental Entities from providing the Borrower’s MRI where the Governmental Entity is originating the insured mortgage through one of its homeownership programs.  For additional information see Handbook 4000.1 II.A.4.d.iii.(F)(2); II.A.4.d.ii.(B); II.A.5.c.iii.(F)(2)(a); II.A.5.c.ii.(B) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

Can gift funds be provided from a friend or other unrelated party?Gifts refer to the contributions of cash or equity with no expectation of repayment.  Gifts may be provided by:   • the Borrower’s Family Member;  • the Borrower’s employer or labor union;  • a close friend with a clearly defined and documented interest in the Borrower;  • a charitable organization;  • a governmental agency or public Entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.    For additional information see Handbook 4000.1 II.A.4.d.iii.(F) or II.A.5.c.iii.(F) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

Can employers contribute toward the borrower’s down payment?Employer Assistance refers to benefits provided by an employer to relocate the Borrower or assist in the Borrower’s housing purchase, including closing costs, Mortgage Insurance Premiums (MIP), or any portion of the Borrower’s Minimum Required Investment (MRI). Employer Assistance does not include benefits provided by an employer through secondary financing.  A salary advance cannot be considered as assets to close.  RELOCATION GUARANTEED PURCHASE The Mortgagee may allow the net proceeds (relocation guaranteed purchase price minus the outstanding liens and expenses) to be used as cash to close.  If the Borrower is being transferred by their company under a guaranteed sales plan, the Mortgagee must obtain an executed buyout agreement signed by all parties and receipt of funds indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt.  The Mortgagee must verify and document the agreement guaranteeing employer purchase of the Borrower’s previous residence and the net proceeds from sale.    EMPLOYER ASSISTANCE PLANS The amount received under Employer Assistance Plans may be used as cash to close.  The Mortgagee must verify and document the Borrower’s receipt of assistance. If the employer provides this benefit after settlement, the Mortgagee must verify and document that the Borrower has sufficient cash for closing.    For additional information see Handbook 4000.1 II.A.4.d.iii.(M) or II.A.5.c.iii.(M) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh.

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