Most renters who could afford a mortgage payment are held back by one number: the down payment. On a $375,000 home, FHA's 3.5% is $13,125, and saving that while paying rent can take years. FHA 100% financing removes that number. AAA Capital Funding closes these loans across Florida, and the structure is simpler than most people expect.
How the 96.5% first and the assistance second fit together
You close on two loans at the same table.
The first mortgage is an ordinary FHA loan for 96.5% of the price. Every normal FHA rule applies: the 580 score for maximum financing, the 46.9% housing and 56.9% total debt-to-income limits with an automated approval, the 1.75% upfront mortgage insurance premium (MIP) and the annual MIP. The FHA loan requirements guide covers each of those rules.
The second mortgage is down payment assistance (DPA) for the other 3.5%. FHA requires every buyer to make a minimum required investment of 3.5% of the price. Normally that comes from your savings or a gift. HUD also lets a governmental entity, meaning a federal, state or local government agency or one of its instrumentalities such as a housing finance agency, provide that 3.5% as a second mortgage. That's the piece that turns 96.5% financing into 100%.
The combined loan-to-value (CLTV, all the loans added together divided by the price) comes to 100%. You own the home with no down payment of your own, and the 3.5% sits on the second lien.
The two kinds of assistance second
The second comes in two forms, and the program you qualify for decides which one you get.
| Feature | Repayable second | Deferred second |
|---|---|---|
| Monthly payment | Yes, on its own term and rate | None |
| Counts in your DTI | Yes, as part of your housing payment | No payment to count |
| When it's paid off | Over its term, or at sale or refinance | At sale, refinance or payoff of the first, unless forgiven |
A repayable second usually runs on a shorter term and a higher rate than the first, so its payment is small but real. A deferred second costs nothing per month, which helps the debt ratios. Some programs cap household income or limit the program to certain areas, and most set their own credit score minimum above FHA's 580.
Who FHA 100% financing fits
This loan is built for the buyer with steady income and a payment they can carry who hasn't stacked up the cash. That covers a lot of people:
- Renters already paying close to what a mortgage payment would be.
- First-time buyers whose savings went to a car, school or a move.
- Buyers who have enough set aside for closing costs or a cushion, and don't want to drain it on a down payment.
- Households where a co-signer, such as a parent or grandparent on Social Security, makes the income work but nobody has a lump sum to put down.
It works on a home you'll live in. The same occupancy rule as every FHA loan applies: you move in within 60 days and live there at least a year.
A $375,000 home with $0 down payment
The numbers below are a Broward County purchase at the 5.75% 30-year fixed rate, with property taxes at about 0.95% of the price and homeowners insurance of $283 a month.
- Price: $375,000
- FHA first mortgage (96.5%): $361,875
- Upfront MIP (1.75%, added to the first): $6,332.81
- Total first mortgage: $368,207.81
- Down payment assistance second (3.5%): $13,125
- Down payment from the buyer: $0
| Monthly payment piece | Amount |
|---|---|
| Principal and interest on the first | $2,148.76 |
| Annual MIP (0.55% of $361,875, divided by 12) | $165.86 |
| Property taxes | $296.88 |
| Homeowners insurance | $283.00 |
| Payment with a deferred second | $2,894.50 |
| Repayable second ($13,125 over 10 years at 7.75%, as an illustration) | $157.51 |
| Payment with a repayable second | $3,052.01 |
Income needed. With a deferred second, the housing payment is $2,894.50. At FHA's 46.9% housing ratio that takes gross income of $2,894.50 divided by 0.469, or $6,171.64 a month (about $74,060 a year). With the repayable second, the housing payment is $3,052.01, and the income needed rises to $6,507.48 a month (about $78,090 a year). Either way, any car, card or student loan payments then have to fit under the 56.9% total ratio.
The second doesn't touch the mortgage insurance. FHA prices MIP on the first mortgage, so this buyer pays the same 0.55% a year as someone who brought $13,125 from savings.
Check your own version of this payment in the mortgage payment calculator.
If your income lands below the line, a co-signer is the first place to look. A parent or grandparent can co-sign on Social Security or SSI, they don't go on the title and they don't move in. The co-signer calculator shows how much buying power one adds. Or call AAA Capital Funding at 888-601-8344 and we'll work through the numbers with you.
The cash that still comes up
100% financing covers the down payment. It doesn't cover closing costs, and that's where buyers get caught off guard if nobody walks them through it.
Closing costs include the lender and title charges, the appraisal, recording fees and Florida's taxes on the new mortgage. Prepaids include the first year of homeowners insurance and the starting deposit into your tax and insurance escrow account.
FHA gives you two ways to cover them without your own savings:
- Seller concessions. The seller can pay up to 6% of the price toward your closing costs, prepaids, discount points and the upfront MIP. On a $375,000 home that's up to $22,500. A seller credit in the 3% to 4% range ($11,250 to $15,000) covers the closing costs and prepaids on most purchases at this price. Seller credits can only reimburse actual costs, so they can't put cash back in your pocket.
- Gift funds. A family member, employer or close friend with a documented relationship can gift whatever the seller credit doesn't cover.
Two items come out before closing: the earnest money deposit that goes with your offer, and the appraisal fee. The deposit is credited back to you on the closing statement, so it counts toward your costs instead of adding to them. When the seller pays your buyer's agent commission as a local custom and the amount is reasonable, HUD doesn't count it against the 6%.
Put your price, seller credit and any gift into the cash to close calculator to see the number you'd bring.
FHA 100% financing compared with saving the 3.5%
Take a renter paying $2,100 a month who can set aside $400 a month toward a down payment on that same $375,000 home.
| Buy now with 100% financing | Save the 3.5% first | |
|---|---|---|
| Down payment from you | $0 | $13,125 |
| Time to get there | Ready now | About 33 months at $400 a month |
| Rent paid while saving | $0 | About $69,300 (33 months at $2,100) |
| First-mortgage principal paid down in those 33 months | $13,708.80 | $0 |
| Monthly mortgage payment | $2,894.50 (deferred second) or $3,052.01 (repayable) | $2,894.50 |
The buyer who waits writes about $69,300 in rent checks to land in the same house with the same payment, assuming prices and rates hold still that long. The buyer who closes now spends those 33 months paying down $13,708.80 of principal on the first mortgage, which is more than the entire 3.5% the saver was working toward. With a repayable second, the trade is $157.51 a month for the second until it's paid off.
What decides whether you qualify
Three things decide whether a 100% financing approval goes through.
Debt-to-income. The first mortgage plus any second payment has to fit inside FHA's ratios. On the $375,000 example, a buyer sitting at 44% with a deferred second lands at about 46.4% with the repayable one, so the type of second matters.
Credit score. FHA itself goes to 580 for 96.5% financing, and the assistance program sets its own minimum on top of that.
The program's own rules. Income caps, county eligibility and homebuyer education vary by program. We match each buyer to the second that fits their income and price.
Run the full purchase through the price check tool for a quick read on income and cash by program.
AAA Capital Funding will lay out the first, the second and the cash to close side by side on your income and the price you're looking at. Call 888-601-8344 and make your decision after you've seen the whole picture.