FHA has rolled out a new option for home buyers who need help obtaining a down payment. Now, for the first time, a family member can loan you the money. Previously, all funds coming from family had to be a gift with no payback required. Not all families are in a position to give funds, but some could make a loan, so this is good news.

What You Need to Know

The loan must be disclosed right up front on the loan application, but don’t worry about the paperwork. Simply tell your loan officer and he/she will input it properly for you.

The loan is recorded with the County Recorder’s Office, just as any official house loan would be. Your closing agent (escrow company or closing attorney, depending on your state) can guide you.

The down payment on an FHA (Federal Housing Administration) loan is 3.5 percent of the purchase price. On a $200,000 house, that would be $7,000 down payment.

The house or condo must be your primary residence. You cannot use an FHA loan for a vacation/second home nor for a rental property.

You do not need to be a first-time home buyer. Second time buying a home, third time, it doesn’t matter.

Don’t Forget Closing Costs

In addition to the down payment, there are closing costs. Such as, lender fees, credit report, appraisal report, title insurance, escrow/settlement fee, and prepaid costs (property taxes, home owner’s insurance, prepaid interest). You can pay these or the seller can pay the closing costs, if it is designated on your purchase contract. Or, the lender can give you a credit toward closing costs in exchange for a higher interest rate.

Credit Score Required For an FHA Loan

Each lender has its own rules for the credit score required for an FHA loan. Typically, that ranges from 580 to 600 as the minimum. If you can boost your score to at least 620, you will get a better interest rate and lower monthly payment.

A Chapter 7 bankruptcy must be discharged for 24 months. A Chapter 13 bankruptcy must have been paid on time, per the arrangements made by the court.

FHA likes to see on-time payments for the past 12 months. If you’re going to be a home owner, you should be able to demonstrate that you’ve been on-track with your finances for one year. That’s reasonable.

Thank you for reading my blog. Subscribe if you want the weekly posts to come to your email.