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You want to take advantage of today's low mortgage rates, but don't have much cash for a down payment and closing costs. FHA approved lenders can help you find ways to raise cash for covering your down payment and closing costs.

FHA Loans: Finding Down Payment Assistance

FHA loans offer low- to moderate-income borrowers opportunities for buying homes without going broke. The main benefit of FHA loans is the minimum down payment requirement of 3.5%. Conventional mortgage lenders typically charge between 10% and 20% down. If you don't have 3.5% down, here are potential solutions:

  • Cash gifts used toward your down payment: FHA guidelines allow borrowers to use cash gifts from relatives, friends, and certain government agencies as a source of down payment funds, but these gifts must be documented with a letter from the donor stating that the amount given is not expected to be repaid.
  • Seller pays buyers closing costs: Although FHA recently reduced allowable seller contributions from 6% to 3%, you can still ask sellers to pay up to 3% of your closing costs. This frees up some of your cash for making a down payment.
  • Secondary financing: Financial assistance in the form of secondary mortgage financing may be available through community housing programs and non profits. These second mortgage loans are typically provided at low rates and may be "silent," which means they require no payments until you vacate or sell your home.
  • Housing grants: FHA borrowers may qualify for housing grants through non-profits and other sources. FHA relies on its approved lenders to determine the validity of grant programs. Unlike loans, grants do not have to be repaid. FHA approved lenders and real estate professionals can provide more information on programs available in your area

Secondary financing and grant programs typically have eligibility criteria including income limits and rules concerning owner occupancy of the home being purchased. Program guidelines and eligibility can vary between agencies, but fair housing and anti-discrimination laws are applicable in any situation involving HUD/FHA

Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.