What Are the Down Payment Requirements for FHA Loans in Missouri? | FSCB

To help more Americans achieve their dream of owning a home, the Federal Housing Administration (FHA) offers an insured mortgage option that provides more flexible approval and terms—including when making a down payment on your purchase.

Although an FHA loan is offered through a federal mortgage program, your lending options and purchasing power can vary depending on the state and county where you live. Missouri residents are fortunate to have excellent FHA lending options in their local area, but it’s important to research the requirements regarding Missouri FHA loans to make sure you qualify for this excellent loan program.

If you’re planning to buy a home in the near future and you are interested in an FHA loan, read on for key points about FHA down payment rules, along with other relevant information to help you through the application process.

The Benefits of Missouri FHA Loans

Although an FHA home loan isn’t your only option for financing a home purchase, FHA loans are popular among Missouri home buyers because of the many benefits offered through this federally supported program. 

These benefits to borrowers include:

• Lower down payments: For most borrowers, FHA loans offer a much lower down payment requirement than other loan programs, including conventional loans offered by a private mortgage company.
• Greater flexibility with credit scores: Although a low credit score may bring additional requirements for mortgage approval, FHA loans tend to be more accommodating of less-than-perfect credit than most other mortgage options.
• Lower mortgage interest rates: As a federally subsidized loan program, FHA loans may offer a lower mortgage interest rate than borrowers are able to find on their own.
• More purchasing power relative to your income: With a lower down payment requirement and small payments due to more competitive interest rates, borrowers can maximize their purchasing power and afford a more expensive home without breaking their monthly mortgage budget.
• The option to add a co-signer: Although some mortgages may restrict or bar borrowers from adding a co-signer, FHA loans typically allow this, which can make a home purchase far more accessible to some borrowers.
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Down Payment Factors for Missouri FHA Loans

For most borrowers with decent credit, an FHA loan only requires a down payment equivalent to 3.5 percent of the home’s purchase price. 

For a $200,000 home, that’s only $7,000 as a down payment—a far more affordable option than a conventional mortgage may require, when a down payment requirement could be five, 10, or even 20 percent. Assuming you meet the program’s credit score requirements, this minimum down payment is standard for every FHA home loan, which can offer a sense of security as borrowers move forward with their home search.

What Is the Maximum Down Payment Required for a Missouri FHA Loan?

If you qualify for an FHA loan, the maximum amount you have to pay will depend on the amount of the home you purchase, as well as your credit score. 

This maximum is determined by identifying the maximum amount you are eligible to borrow through an FHA loan. These maximums are determined based on your location, which ensures that the FHA program can accommodate borrowers across the country based on the price of housing in their local market. 

If the maximum FHA loan for a single-family home in your Missouri community is $420,000, for example, a borrower with acceptable credit would have to pay a down payment of $14,700. For a borrower with poor credit, the down payment would need to be $42,000. Your local area may be higher or lower than this maximum home value, though, so it’s important to check with your local bank to find out what the maximum amounts are in your area.

Keep in mind, too, that this maximum amount doesn’t have to be your budget for buying a home. If the maximum borrowing amount is $420,000 but your personal spending budget is $300,000, you won’t need to worry about these FHA program limits.

Buying your first home? The Essential Guide for First-Time Home Buyers has tips to help you find the home that's right for you in every way--including financially. 

What Are the Down Payment Rules for Borrowers with Low Credit?

Although a low credit score doesn’t necessarily exclude you from receiving an FHA loan, additional requirements may be enforced, including when it comes to providing a down payment. 

In cases where borrowers have low credit scores—typically less than 580—buyers may need to provide a 10 percent down payment to offer greater security for their home purchase. On a $200,000 home, this amounts to a $20,000 down payment. This might be an achievable option for some borrowers, but others may prefer to put their home search on hold to focus on rehabilitating their credit and qualifying for a lower FHA down payment.

Other Requirements to Qualify for a Missouri FHA Loan

Compared to conventional mortgages, FHA loans do bring additional requirements that need to be met. These requirements are enforced because of the subsidized nature of the program, which aims to make home purchases more affordable for a wider range of buyers. Fortunately, these requirements are fairly minimal in terms of creating barriers to home ownership. 

FHA loan requirements include:

• At least two years of employment and income history: This can include employment across multiple different employers. If you are self-employed, additional proof of income, including past tax returns, may also be required to meet income eligibility.
• A mortgage insurance premium to secure your loan: This insurance premium will offer coverage if you end up defaulting and going into foreclosure on your home.
• A minimum credit score of 500: If your score is below 500, you won’t be eligible for an FHA loan even if you can afford a 10 percent down payment.
• A home purchase that will serve as your primary residence: FHA loans cannot be used to purchase second homes or rental properties.

Even if you discover that you don’t qualify for an FHA loan now, you may be able to create a plan to meet these requirements in the near future, clearing a path to becoming a homeowner.

What If I Need Help Affording a Down Payment?

If you’re struggling to afford the down payment for an FHA loan, local down payment assistance programs and resources may be able to help. Your local bank may also have options available to help, ranging from loan products to additional resources to help you secure a down payment for your home.

Consumers struggling to afford a 10 percent down payment due to credit score restrictions may also want to seek out credit counseling or other financial services to rebuild credit, elevate their credit score, and qualify for a smaller down payment. Your local bank can point you toward resources that will help you create a plan of action.

Ready to start your search for a home? Getting prequalified is the best first step to understand your purchasing power, your estimated interest rate, and other key information that will affect your home search and your eventual purchase.

If you’re interested in an FHA loan, your community bank can give you additional information and insights about the pros and cons of this loan program—and armed with that information, you can apply for and receive an FHA loan through that institution. 

Looking for more insights into the home-buying process? Download The Essential Guide for First-Time Home Buyers today.

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