Home loans backed by the Federal Housing Administration (FHA) typically require a minimum down payment of 3.5 percent. However, some lenders do offer 100 percent financing options for first-time home buyers. These programs vary by lender and are not always available to FHA borrowers in all states.
FHA Mortgage Basics
The FHA has been part of the U.S. Department of Housing and Urban Development (HUD) since 1965. FHA mortgages have served as a viable option for first-time home buyers and others with limited down payment funds. Conventional loans generally require a 20 percent down payment; loans with smaller down payments require private mortgage insurance, which is often expensive.
Down Payment Requirements
A down payment is the amount home buyers pay toward the purchase of a property. Lenders require a down payment because it shows the buyer's commitment to the investment as he stands to lose the funds if he defaults on the loan and the property is foreclosed. Conventional lenders have long required a 20 percent down payment in most cases. The FHA requirement is 3.5 percent to enable more people to own homes.
100 Percent Financing
As noted, 100 percent financing for FHA loans is not common. However, by researching FHA approved lenders, you may find that option available. The "FHA Home Loans" website indicates a few options, including: CHDAP and CHFA, which are 100 percent financing program for first-time buyers in California; Nehemiah and HART, which are 100 percent financing options through nonprofit organizations; and Access2000, which is a 102 percent financing option for first-time buyers.
More About FHA Loans
FHA loans not only offer low down payment requirements, they typically are easier to qualify for and have lower closing costs. Among its more lenient credit qualifying guidelines, the FHA typically allows for a minimum FICO credit score of 620, a home purchase two years after a bankruptcy and a home purchase three years after a foreclosure. This type of credit flexibility is not common to conventional lenders. FHA lenders take on these risks because FHA borrowers have to pay for FHA mortgage insurance, which covers the lender's investment if the borrower defaults.