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How does fha loan work

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FHA Down Payment Assistance – How Does It Work?

The term “down payment assistance” sometimes conjures up negative thoughts – but when it comes down to it, who wouldn't benefit from an influx of extra money when buying a new home? Sounds like a win-win for both home buyers and home sellers.

The most important thing to know is that basically any qualified home-buyer using an FHA loan can utilize down payment assistance – contrary to popular belief, it is not reserved for low-income individuals with less-than-perfect situations. It can help them too, but as a smart home-buyer. you should take advantage of every opportunity possible. One huge opportunity that is too oft-missed is down payment assistance.

So, how does one actually get down payment assistance? In other words, who's giving out all this free money? Know this: it's not one particular person or institution – when talking about down payment assistance, it's seller-funded.

All seller-funded means is the seller of the home you are buying is making concessions to help you buy the home. But, because it is illegal for sellers to just give the money to buyers outright, down payment assistance providers like Nehemiah® and AmeriDream® are used.

Here is the breakdown of the process of obtaining down payment assistance:

  1. Find a knowledgeable lender who is registered with a down payment assistance provider and can help walk you through your financing options .
  2. Find a real estate agent who is experienced in negotiating seller concessions and down payment assistance. Then, find your home!
  3. Finance your home with an FHA loan .
  4. When writing a purchase agreement (offer), include the contingency that, upon accepting the offer, the seller will contribute to a down payment assistance

    provider. You choose the amount – Nehemiah allows up to 6% of the final sales price and AmeriDream allows up to 10%. Each provider requires a fee, too – most are under $500 and if you write it into your purchase agreement, you can get a seller to pay that too.

  5. When the seller accepts, they donate the agreed upon amount to the down payment assistance provider.
  6. Prior to closing, the seller sends the money to the down payment assistance provider and your lender arranges to get it from them to fund as a part of your new loan.
  7. Close! Your lender and down payment provider will take care of all loose ends and paperwork.

Once the seller agrees to your offer, your FHA loan lender will show you how you can use your money – as part of your down payment, to pay points for a lower rate, or for closing costs. The keys to down payment assistance are with your lender and your real estate agent. Through them, you'll negotiate yourself a great deal with less money out of your pocket. Still sounds like a win-win.

***Editor's Note: Quicken Loans no longer offers FHA down payment assistance. FHA down payment assistance was phased out by the FHA as part of the 2008 Stimulus Bill. But your down payment can still be a gift from a relative. Please call us at if you have questions about FHA down payments.***

Related Info
  • The quick way to FHA is FHA Express.
  • Use In-House Realty to find a real estate agent – free of charge.

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