What should the minimum cash investment for an FHA borrower reflect?

The minimum cash investment for an FHA borrower should reflect an amount that excludes closing costs and prepaid expenses. This is important because the FHA program is designed to make homeownership more accessible, particularly for those with lower incomes or limited savings. Therefore, the cash investment criteria typically focus on the down payment required by the FHA, which is a percentage of the purchase price of the home.

Under FHA guidelines, borrowers are generally required to make a down payment of at least 3.5% of the home's purchase price. This requirement does not include closing costs or prepaid expenses, which are separate from the down payment. By concentrating solely on the down payment, the FHA allows borrowers to have a clearer understanding of the minimum investment they need to secure the loan, without the additional burden of upfront costs that can vary significantly based on the specifics of the transaction or location.

Understanding this distinction helps potential FHA borrowers to better prepare their finances, knowing what portion of their funds can be allocated directly to the down payment, while still accounting for other expenses associated with purchasing a home.