The Home Buyer’s Guide To FHA Down Payment Assistance

Federal Housing Administration (FHA) loans are a popular mortgage loan option backed by the FHA, a part of the U.S. Department of Housing and Urban Development (HUD).

"Backing" means the government protects a lender's investment if a borrower defaults. Many first-time home buyers choose them because of their lower down payment and credit score requirements.

You can qualify for an FHA loan with a credit score as low as 500, but your score affects your down payment amount. You must have a 580 or above to qualify for a down payment of 3.5%, but if your score is between 500 or 579, you must put 10% down.

If you're unsure you can afford a down payment, FHA down payment assistance may help.

Can You Get Down Payment Assistance With An FHA Loan?

What exactly is a down payment? A down payment is a lump sum you pay when you purchase a home. You'll pay a percentage of your home's purchase price, which reduces the amount you'll borrow from your mortgage lender.

What if you can't make your down payment for an FHA loan? Down payment assistance programs help you put money toward your down payment to help prospective homeowners achieve their homeownership goals.

Can you get down payment assistance with an FHA loan? While the FHA does not offer its own down payment assistance program, home buyers can get down payment assistance with an FHA loan.

Types Of FHA Down Payment Assistance

FHA loan down payment assistance can come through grants, loans and matched savings. Let's walk through these options.

Grants

A grant is a type of financial assistance that you don't have to repay, often through a one-time cash sum. You can find them through financial institutions or state and local governments.

This type of down payment assistance often gets marketed to low- or moderate-income borrowers as a no-interest second loan, so ensure you know what you're getting before you choose this option.

Loans

Loans can also help with down payment assistance, including forgivable mortgage loans, deferred-payment loans and low-interest loans:

• Forgivable mortgage loans: Forgivable mortgage loans are second mortgages you don't have to pay back as long as you live in the home for a certain number of years. However, you must repay the loan if you move before the agreed term. For example, lenders may forgive the loan after 5 years but you could make them for up to 20 years.
• Deferred-payment loans: Deferred payment loans are second loans that usually cover your down payment. You don't have to repay it until you move, sell or refinance. Unlike a forgivable mortgage loan, you'll have to repay them if you ever move.
• Low-interest loans: You may want to consider taking out a low-interest second mortgage to cover your down payment for a second mortgage while you finalize your first mortgage. The funds from this second mortgage loan can cover your down payment. Note that you'll make two mortgage payments each month.

Matched Savings

You may also consider tapping into matched savings programs, also called individual development accounts. They help homeowners deposit money into an account with a financial institution, government agency or community organization. The organization will match the buyer's deposit; the total funds can cover your down payment.

How To Get Down Payment Assistance For An FHA Loan

So, how exactly do down payment assistance FHA options work? Let's look at how you can get down payment assistance for an FHA loan.

1. Meet Typical FHA Down Payment Assistance Requirements

You'll need to meet the requirements to qualify for down payment assistance. For example, a program may require a certain credit score, income limit and debt-to-income ratio (the amount of debt you have relative to your income). FHA down payment assistance programs may also require you to meet other conditions:

• Buy in a particular home location
• Have first-time home buyer status
• Attend a class on home buying and finances
• Live in the home for a certain number of years

Contact the organization that offers down payment assistance to learn more about your options and requirements.

2. Search For FHA Down Payment Assistance Options

You can access resources for information regarding FHA down payment assistance options, including:

• HUD website: You can find information about state or local government-based programs on the Department of Housing and Urban Development (HUD) website. Choose your state from the list for more information about various programs sponsored by organizations that fit you.
• Your lender: Reach out to your lender to learn about down payment assistance programs. Borrowers with an FHA loan from Rocket Mortgage^Ⓡ should contact a representative to see if they offer that option.
• Local websites: Check your local city, state or county website to learn more about down payment assistance programs they might offer.

3. Contact Your Mortgage Lender

Contact your mortgage lender to ask if the assistance you've chosen is permitted with an FHA loan. They will be able to help you determine the right type of FHA loan assistance and help walk through your options for down payment assistance.

4. Apply For Down Payment Assistance

The process of applying for down payment assistance varies depending on the entity. For example, the entity will collect documents to verify your eligibility, which likely includes checking your income, home price and whether your home is a primary residence.

Check with the entity or lender to learn more about the application process.

FAQs About FHA Loans & Down Payment Assistance

Still have questions about FHA down payment assistance and their requirements? Take a look below.

Does the FHA offer down payment assistance?

The FHA doesn't offer down payment assistance, but you may get help with your down payment through other means, such as government programs like your state's housing finance authority, city and county government or HUD.

Can you borrow money for a down payment on an FHA loan?

Mortgage lenders generally require you to use your funds, gift money or down payment assistance to fund your down payment. However, certain loans can help with down payment assistance, such as forgivable mortgage loans, deferred-payment loans and low-interest loans.

What are the down payment requirements for an FHA loan?

You can qualify for an FHA loan with a credit score of 500.

• Credit score 580 or above: Requires a down payment of 3.5%
• Credit score between 500 and 579: Requires a down payment of 10%.

Learn more about FHA down payment requirements.

Can you qualify for FHA down payment assistance twice?

You can apply for multiple FHA loans, but only one at a time. The FHA wants people to buy primary residences with FHA loans instead of taking advantage of low down payment and credit score requirements to buy investment properties.

Note that home buyers can get assistance with closing costs, but it's capped at 6%. You must put up some of your money with an FHA loan.

The Bottom Line

Don't let a down payment be a barrier to homeownership. You can tap into loans, grants or matched savings options.

Ready to explore your options? Apply for a mortgage with Rocket Mortgage.