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Buy A House With As Little As 3.5% Down Using FHA Loans

Two women are on their computer finishing their FHA loan financing as they prepare to buy their first home.

Federal Housing Administration (FHA) loans are a popular financing option among home buyers – especially those in the Bay Area who are contending with high property prices. One of the major appeals to this program is the minimum required down payment. FHA financing allows you to purchase with 3.5% up to the County loan limit. Given this, it is very popular amongst cash-strapped buyers.  

Down Payment Requirements For FHA Homebuyers In California  

With FHA financing, lenders must show a minimum down payment of 3.5% of the purchase price or appraised home value (based on the lesser of the two). 

In other words, this means that the maximum loan-to-value (LTV, calculated by taking the loan amount, divided by the lesser of appraised value and purchase price) ratio for an FHA-insured mortgage is 96.5%.

 Concerning the down payment, some great news is FHA financing allows for 100% of your down payment funds to be gifted from a relative. Meaning, you don’t have to provide the down payment for your purchase from your own funds. We understand buying a house can require a large investment, and sometimes the purchase isn’t possible without your family’s help. If this fits your scenario, FHA may be an excellent program for you.   

Can I use Gift Funds to Cover the Minimum Investment for FHA Financing? 

FHA financing offers the benefit of allowing gift funds from a relative toward your purchase. A family member could provide you with funds to cover the entire down payment requirement mentioned above.

The caveat to this is that money cannot be a loan; it must truly be a gift. To verify this, the donor must sign a formal gift letter confirming the funds are, in fact, a gift and that they do not expect any repayment. 

In addition to a down payment, there will be closing costs due to your purchase. Once you have made your minimum 3.5% down payment contribution, FHA and HUD will allow you to utilize a seller credit toward the buyer’s closing costs, typically up to 6% of the purchase price. Seller credits, of course, must be negotiated into your contract and are not always viable depending on each scenario and market conditions. 

Have Questions About FHA Financing?

JVM Lending has been helping homebuyers purchase properties using FHA loans for over a decade. We offer a variety of competitive mortgage programs for borrowers, including the FHA loan program. For more information about FHA home loans or to learn more about getting pre-approved for a California or Texas loan, please contact our expert team. Our Mortgage Analysts can help you choose the right type of financing for your situation.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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