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FHA guidelines allow lower down payments ; down payment assistance programs can also help with funding your home purchase.

FHA Loans: Finding the Cash You Need

Ideally you're readingt his before shopping for a mortgage. Buying a home requires understanding potential costs and budgeting ahead of time. If you're short of cash, an FHA home loan can help in several ways.

Estimating How Much Cash You'll Need

Although FHA guidelines provide for lower down payments, you'll also need to pay closing costs. If you're buying a home costing $200,000, the minimum down payment would be 3.5%, or $7000. Closing costs typically run between 3% and 4% of your purchase price, so you would need an additional $6000 to $8,000. FHA charges borrowers an up-front mortgage insurance premium (UFMIP) of 2.25% of their FHA mortgage amount. Based on a 3.5% down payment, the mortgage for a $200,000 home purchase would be $193,000. The UFMIP would be approximately $4,343.00. FHA allows borrowers to add the UFMIP into the loan amount; if you do this, you would need a minimum of $13,000 for meeting the down payment and closing costs for purchasing a $200,000 home.

FHA Guidelines Allow Down Payment Assistance

FHA guidelines allow cash gifts to be used toward your down payment, and additional assistance may be available from local housing finance programs. These programs usually require the following:

  • Meeting income and program eligibility guidelines
  • Agreeing to occupy the home you're buying as your primary residence
  • Completing homeowner education courses

These programs award assistance through low-cost second mortgages; you may not be required to make any payments on these loans as long as you live in the home you're buying. When you sell or otherwise vacate your home, the housing assistance loan becomes due and payable. FHA approved lenders can help with finding local down payment assistance programs; contact programs directly to learn about specific eligibility requirements.


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.