Usually when you purchase a home, a conventional loan may require up to 20% for a down payment. Or, for a Federal Housing Administration (FHA) home loan, you’ll still need about 3.5% for a normal down payment. But what happens if you don’t have that kind of money for a down payment? The FHA $100 Down Payment program may be a solution for you.

When a homeowner with a FHA-insured mortgage can no longer make their payment, the lender forecloses on the home. FHA pays the lender what’s owed on the home, and the U.S. Department of Housing and Urban Development (HUD) takes ownership of the home. HUD then turns around and offers these properties for sale.

The FHA $100 Down Payment program is a special program in which you can purchase a HUD foreclosed home with as little as $100 for a down payment. To qualify you must:

• Be approved for the program.
• Purchase a HUD foreclosure home.
• Use FHA financing.
• Live in the home as your primary residence. You can’t use the home as a rental property.
• Have a minimum credit score of 640 and meet standard FHA credit guidelines.
• Still provide earnest money of $500 to $2,000 depending upon the property. Earnest money will be returned to you at closing as a credit.

Additionally, the purchase price of the home must be equal to or less than the appraised value of the home. However, you likely won’t need to obtain an appraisal since HUD will already have one from their foreclosure process. But if a new appraisal is needed, it must be an “as is” appraisal without repairs included in the cost.

If repairs are needed to the home, they cannot exceed $5,000. However, many properties have a repair escrow set aside to make repairs to the home that the FHA has already identified as eligible repairs. All repairs must be completed within 90 days. The home must be in a livable condition before the loan can be approved.

Other features of the program include:

• Upfront mortgage insurance is required on all loans. You can pay for all of it in cash or have it entirely financed into the loan amount.
• FHA will pay all closing costs – up to 3% of purchase price.

However, there are some drawbacks to the program:

• It may be difficult to take advantage of all the features of the program since your loan amount is limited to a specified percentage of the FHA appraisal. So if you decide to utilize the $100 down payment and the repair escrow, you may end up exceeding the maximum loan-to-value (LTV) ratio (the ratio of the loan to the value of the property), depending on the price of property.
• FHA deadlines are tight, so you must be able to move quickly with all required  paperwork.

If you’re interested in obtaining a mortgage loan through the FHA $100 Down Payment program, contact the mortgage specialists at Grandview Lending in Indianapolis at 317-255-0062. We can answer your questions about the program to help you determine if the FHA $100 Down Payment program is right for your needs.

Photo credit: iStockphoto/Backyard Productions