Summary: The excitement of a new home purchase can sometimes override wisdom and prudence when…
We’ve covered some of the minimum requirements for an FHA loan before. Today, we’ll take a closer look at the down payment in particular, since it is one of the key requirements for an Oregon FHA loan.
Questions? If you have questions about FHA down payments that are not covered below, please contact our staff. Our mortgage financing experts will be happy to answer any questions you.
Oregon FHA Down Payment Requirements
The Federal Housing Administration home loan program is managed by the Department of Housing and Urban Development (HUD). So it is HUD that establishes all of the guidelines and requirements for Oregon FHA loans, including the down payment criteria.
According to current HUD guidelines in 2020, home buyers who use an FHA loan to purchase a house must make a minimum down payment investment of 3.5%.
As it states in the official FHA handbook:
“For purchase transactions, the maximum LTV is 96.5% of the adjusted value.”
Basically, this means you can borrow up to 96.5% of the purchase price or appraised value, when using an Oregon FHA loan. Borrowers must make a down payment of at least 3.5% when using this program to buy a house.
Related: FHA benefits for first-time buyers
The Credit Score Connection
Generally speaking, home buyers need a credit score of 580 or higher to be eligible for maximum financing. So if you want to use an Oregon FHA loan to buy a house — and you want to take advantage of the 3.5% down payment option — you’ll probably need a credit score of 580 or higher.
Banks and lenders use credit scores to get a feel for how you have borrowed and repaid money in the past. Essentially, this three-digit number scores you on your previous borrowing habits. People who tend to manage their debts wisely and pay all bills on time have higher credit scores. In contrast, those who accumulate excessive debt and/or have a habit of missing payments usually end up with lower credit scores.
A higher score improves your chances of qualifying for a home loan and could also help you secure a better interest rate. Additionally, a good credit score will allow you to take advantage of the smaller down payment option with an Oregon FHA loan.
Down Payment Gifts Are Allowed
There is another important aspect of Oregon FHA down payment requirements you should know about, and it has to do with financial gifts from third parties.
Current HUD guidelines allow FHA borrowers to obtain gifts from family members, close friends, and other approved sources. These third-party funds can be used to cover your down payment expense.
So while there is a 3.5% down payment requirement for Oregon FHA purchase loans, there is some flexibility as to where the money comes from. It doesn’t necessarily have to come out of your own pocket.
The caveat here is that the money being donated must truly be a gift. It cannot be a short-term loan from one person to another. In fact, mortgage lenders are required to document this by obtaining a letter from the donor. The gift letter must state that the person providing funds does not expect any kind of repayment.