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3 Easy Ways to Arrange Down Payment for an FHA Loan with a 3.5% Down

Real Estate

If you are a first-time home buyer and wondering how to finance your home, then choose an FHA home loan program. Designed to help the first-time homebuyer, this special home loan program is insured by the Federal Housing Administration while the loan is offered by the FHA-approved lenders. But what about the down payment? Every home loan program wants a down payment and the FHA is no exception. 

Well, while conventional loans want 20% down payment, for FHA, it is 3.5%. However, you have to arrange that down payment before you opt for an FHA loan with 3.5% down payment. Worried about how to arrange that? Here are some effective ways that you can follow. 

  • Look for down payment assistance programs 

Most people, who don’t have enough money for the down payment, accept private mortgage insurance without checking whether they are eligible to opt for assistance programs. If you are about to opt for a 3.5% down payment FHA loan and wondering how to manage that down payment amount, then opt for down payment assistance programs. Come as grants, loans (second mortgages) that need to be paid down, loans (second mortgages) with deferred payments, loans (second mortgages) that are forgiven over a set number of years, states offer different types of down payment assistance programs. While some programs are designed for first-time homebuyers who meet income, certain credit, and home price requirements, others are designed for encouraging people to purchase homes in some particular regions or neighborhoods. Being a first-time home buyer you have certain advantages, use it to get down payment assistance. 

  • Ask for a gift 

With an FHA loan, you have another way to arrange the down payment amount – looking for a gift from your family. Asking for money from your family members may not seem an ideal option, but if you have some near and dear one, who is a wealthy person and ready to help you, then you can ask for help. It will be a win-win situation for both of you. If he or she gifts you some or all of the down payment, he or she will not only be doing a noble deed, but they can get a tax write-off from it. The gift tax exemption bases on the amount gifted. But if the gift is out of the question, ask to borrow the money and come up with a repayment schedule, which also includes interest. 

  • Complement your income with a part-time job

When you involve yourself in a part-time job along with a full-time one, you will earn even a little more at the end of the month. This extra income will impact your debt-to-income ratio that is a metric for measuring how much of your monthly gross income goes to debt payments. Nowadays, lenders want a debt-to-income ratio that is no more than about 43%. Your extra income will help you to lower your DTI ratio. Besides, you can save the extra money for your down payment. 

So, you follow any of the ways to arrange a 3.5% down payment and then opt for a lender to apply for the loan. Wondering whether you get the approval or not? Consider this real-life example, where a house was sold on 12/10/2019 at 3614 Braewin Ct, Houston, TX 77068 for $267,500 with 5 bedrooms and 3 bathrooms and the size of the home is 3,613 Sq Ft. With an FHA home loan program, the down payment would be only 3.5% or $9,363 and the loan amount is $258,138 and the cash to close including closing costs could be $12,009.01.

So, what to wait for? Apply today. 

Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.