3.5 Percent: The FHA Cash-to-Close Number That Almost Stopped Gregory's Home Purchase
The Number Nobody Explained
3.5 percent. That is the number that almost stopped a home purchase near Mount Pleasant, SC before it ever got to the closing table. Not the interest rate. Not the sales price. The minimum cash Gregory had to bring from his own pocket.
A situation that comes up often with FHA buyers is assuming the down payment they have saved automatically satisfies everything FHA requires for cash to close. Gregory made that same assumption. He had his down payment ready, felt confident, and figured the rest of the process was paperwork. What he did not realize is that FHA cash-to-close requirements are made up of more than one piece, and each piece has to be documented on its own.
What FHA Actually Requires
HUD 4000.1 spells this out clearly: "The Mortgagee must verify and document that the Borrower has sufficient funds from an acceptable source to facilitate the closing. For a purchase transaction, the amount of cash needed is the difference between the total cost to acquire the Property and the total mortgage amount. FHA requires a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value from the Borrower's own funds. Reserves are required for certain property types."
Read that carefully and you will notice two distinct requirements. The first is the Minimum Required Investment, the 3.5 percent floor that has to come from the borrower's own funds. The second is reserves, which are required for certain property types, and which are verified separately from the MRI.
Many buyers, like Gregory, treat these as one combined pool of money. They are not. A lender has to verify and document both, from acceptable sources, before the loan can close.
Where Gregory Almost Got Stuck
Gregory's property type triggered a reserve requirement that his down payment savings alone did not cover. Because his cash was not broken out into the MRI and reserves as two separate documented amounts early in the process, it looked, for a moment, like he might come up short at the closing table. That is a stressful place to discover a gap, and it is entirely avoidable.
The fix is not complicated. It is a matter of sequencing. Before Gregory went to contract, we mapped his Minimum Required Investment as its own verified number, and we mapped his reserve requirement as its own verified number, from acceptable sources, documented separately. Once both numbers were confirmed in writing, there were no surprises waiting for him later in the transaction.
The One Question That Prevents This
If you are planning an FHA purchase, ask your loan officer this exact question: What is my Minimum Required Investment in dollars, and does this property type require reserves under FHA guidelines? Get both answers in writing before you sign a contract.
That single question forces the separation Gregory's situation needed from the start. It turns a vague assumption about your down payment into two concrete, documented numbers you can plan around.
Plan Your Numbers Before You Shop
FHA cash-to-close math is not guesswork, and it should not be a surprise at the closing table. I am Jason Sharon, a licensed mortgage broker with Home Loans Inc, and my approach is simple: I find the path by mapping every dollar before you sign anything, not after.
If you are considering an FHA purchase near Charleston, North Charleston, or Mount Pleasant, SC, call 843-LOW-RATE and let's map your Minimum Required Investment and reserve requirements before you write an offer.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: 3.5 Percent