With an FHA loan, borrowers can purchase a home with a down payment as low as 3.5% of the home’s purchase price.
Below, we’ll dive into the requirements for an FHA loan down payment and the types of down payment assistance available for these loans.
What are the benefits of an FHA loan?
FHA loans are government-backed loans offered by the Federal Housing Administration (FHA).
This loan program offers significant benefits for home buyers including:
- Low down payment
- Flexible credit qualifications
- Relatively low mortgage rates
These benefits make it an excellent loan program for first-time home buyers or those with limited cash reserves.
What is the minimum FHA loan down payment?
Your down payment minimum with an FHA loan will depend on your credit score.
Homebuyers with a credit score of 580 or greater can get an FHA loan with just 3.5% down.
Homebuyers with scores between 500-579 may still qualify for an FHA loan but will likely need to make a larger down payment of 10%.
FHA minimums and private lenders
Keep in mind that while the FHA sets the minimum requirements for this loan program, private mortgage lenders can set their own standards, which may be stricter.
If you’re hoping to qualify with a credit score between 500 and 579, for example, it may be harder to find a willing lender — even though FHA technically allows these credit scores with 10% down. So make sure you shop around and explore your options. Some lenders will be more lenient than others.
Mortgage insurance requirements for an FHA loan
In addition to the guarantees offered by the FHA, lenders charge mortgage insurance premiums (MIP) to offset the higher risk associated with FHA loans. The borrower pays for this insurance but it’s the FHA lender who gets the payout in the case of mortgage default and foreclosure.
MIP comes in two parts. First, there’s an upfront mortgage insurance premium (UFMIP). UFMIP can be paid at closing but most borrowers roll it into the loan amount to avoid the upfront fee. The cost is usually 1.75% of the loan amount. So this is what a $200,000 home purchase would look like:
- Purchase price: $200,000
- Down payment (3.5%): $7,000
- Loan amount before upfront MIP: $193,000
- Upfront MIP of 1.75%: $3,378
- Total loan amount: $196,378
Secondly, you have to pay a smaller (but still significant) premium each month. Most often, this monthly mortgage insurance is equal to 0.85% of the existing loan balance per year. For that $200,000 home purchase, it will cost about $136 per month, which is added to the monthly mortgage payment.
FHA mortgage insurance premiums (MIP) don’t drop off automatically
Unlike the private mortgage insurance with conventional loans, which drops off after you’ve accrued sufficient home equity, the mortgage insurance premiums on an FHA loan will typically last for the life of the loan.
To get rid of your mortgage insurance payments, you’ll need to refinance to a different loan type — one without mortgage insurance — once your loan-to-value (LTV) is greater than 80%.
The only exception is for FHA borrowers who make a down payment of 10% or more. In this case, your MIP is removed after 11 years.
Down payment gift rules for FHA loans
An added benefit of FHA loans is that they offer less strict rules about down payment gifts than some other types of mortgages, making it that much easier for borrowers to benefit from the help of family or friends.
Some — or even all — of your down payment for your new home can be a gift, as long as:
- The money is a gift, not a loan in disguise
- The person giving the money provides a formal gift letter
- There is a documented paper trail of the money leaving the giver’s account and arriving in yours
The gift can come from a family member, an employer or labor union, a close friend, or a charitable organization. This is a big FHA loan benefit as conventional loans have stricter rules regarding gift funds.
FHA loan down payment assistance programs (DPAs)
There are thousands of down payment assistance programs (DPAs) across the United States. And there’s at least one in every state. Many cities and counties offer their own programs, too.
Every DPA has its own rules. Some give help with closing costs while others don’t. Some help only first-time buyers.
Assuming you qualify, you may be offered a low-interest loan that you pay down in parallel with your main mortgage. You could even be given thousands of dollars in outright grants — meaning you never have to repay a cent.
Low down payment alternatives to FHA loans
There are a number of low down payment loan program alternatives to the FHA loan.
Conventional 97 loan: 3% down
Sometimes known as “Conventional 97” mortgages — because you can borrow up to 97% of the value of the home — these loans require a minimum down payment of just 3%.
That’s lower than the FHA’s 3.5% minimum. So why does anyone opt for an FHA loan?
Well, it’s mostly because of the credit score requirements. Fannie Mae, for instance, insists on a minimum score of 620 for its fixed-rate mortgages (FRMs) and 640 for its adjustable-rate mortgages (ARMs) to qualify for the Conventional 97 program. Some private lenders require even higher scores.
To get the best rates for a Conventional 97, you should have a good credit score above 700.
If you have a good credit score, you might opt for a low-down payment conventional mortgage. This is because you can cancel mortgage insurance when you’ve paid down the loan. FHA requires mortgage insurance for the entirety of the loan term.
HomeReady loan: 3% down
This conventional loan program, intended for moderate-income borrowers, will allow you to buy a home with just 3% down. It also has lower private mortgage insurance (PMI) rates compared to a standard conventional loan.
To qualify, you’ll need to earn less than 80% of your area’s median income.
Home Possible loan: 3% down
Much like a HomeReady loan, this Home Possible loan program can help moderate-income borrowers purchase a home with a down payment of just 3% and reduced PMI premiums.
VA loans: 0% down
VA loans are reserved almost exclusively for veterans who meet minimum service levels, and those now serving in the military.
If you’re eligible, your service buys you one of the best mortgages around: zero down payment, low-interest rates, no continuing mortgage insurance, and the option of a VA streamline refinance later.Click here to check your VA home loan eligibility (Jan 26th, 2023)
USDA loans: 0% down
If you want to live in a less densely populated area, you may be eligible for a USDA loan with zero down.
And that’s more likely than you may think: roughly 97% of the American landmass is so designated, including some suburbs.
However, these mortgages are reserved for those with “regular” incomes — up to 115% of the area’s median to be exact. For example, home buyers near Portland, Oregon can make up to $105,950 and still be eligible. There’s a good chance that you’re income-eligible.
You still have to pay some mortgage insurance on a USDA loan, but probably less than you would with an FHA one.
FHA loan requirements in 2023
Besides down payment requirements and minimum credit score, what else is needed to qualify for an FHA loan?
FHA loan limits
In most of the US, you can borrow up to $472,030 for a single-family residence with an FHA loan. But that rises to $1,089,300 if you’re buying in an area with high home prices.
The limit may be even higher if you want to purchase a home in Alaska, Hawaii, the US Virgin Islands or Guam — or if you’re buying a residence for multiple families.
To find the loan limits in the place you want to buy, use the look-up tool on the website of the US Department of Housing and Urban Development (HUD).
FHA debt-to-income ratio (DTI)
Alongside your credit score and down payment, the other thing lenders look at closely is your debt-to-income ratio or DTI. That’s the percentage of your pre-tax monthly income that’s taken up by monthly commitments including debt, alimony, and child support. You will also need to add your housing expenses once your new mortgage is in place. Utilities are not taken into account.
FHA guidelines are relatively flexible about your DTI. And it’s possible to get approved with one as high as 50%. However, you’ll likely need to impress in other ways (like a higher credit score or down payment than the minimums) to get that high a ratio approved. More often, FHA lenders prefer a DTI below 45%.
FHA loan down payment FAQ
What is an FHA loan?
An FHA loan is a government-backed mortgage loan insured by the Federal Housing Administration (FHA) that requires a minimum down payment of 3.5% and has more flexible credit requirements than many other loan options. FHA loans can be used to buy a home, refinance your existing mortgage, or renovate a home.
What is the minimum down payment for an FHA loan?
For borrowers with a credit score of 580 or above, the minimum down payment for an FHA loan is 3.5%. For borrowers with a credit score between 500 and 579, the minimum down payment is 10%.
Does FHA require 3.5% down?
Yes, the FHA requires a minimum down payment of at least 3.5%.
Can you put more than 3.5% down on an FHA loan?
Yes, you can put down more than 3.5% and it may even lead to a lower mortgage rate. Additionally, depending on your credit score, a 10% down payment may be required.
Can you do no down payment with FHA?
FHA home loans do not offer a “zero down” option, however, there are different kinds of down payment assistance available for FHA borrowers. There are both state and regional programs that offer down payment assistance and which may enable a borrower to obtain an FHA loan without using any of their personal funds for the down payment or closing costs.
Can you use a credit card for an FHA down payment?
No, using a credit card is strictly prohibited by the FHA, as credit cards are considered “non-collateralized loans.”
Can you put 20% down on an FHA loan?
The FHA only requires a minimum down payment of 3.5% (or 10%, for lower credit borrowers). However, you can put down as much as you want above and beyond the down payment minimum, and doing so may get you a lower mortgage rate and lower monthly payments.
What happens if I put 20% down on an FHA loan?
A larger down payment on your FHA loan will likely get you a lower mortgage rate and lower monthly payments. But, unlike conventional loans, you’ll still need to pay mortgage insurance, even if you make a down payment of 20% or more. That’s why a conventional loan is often more affordable if you have a large down payment.
Can a down payment be included in an FHA loan?
No, you cannot finance your down payment into your FHA loan. However, there are down payment assistance programs that may help to cover your down payment and closing costs.
Can I get additional down payment assistance with an FHA loan?
The FHA itself does not offer down payment assistance. However, there are a number of down payment assistance programs and grants that can help FHA borrowers.
Is an FHA loan right for you?
An FHA loan might be the right answer if you’re looking for a low down payment loan program with relatively low interest rates and flexible credit requirements.
FHA loans are particularly helpful for:
- Those who wish to be homeowners but who would otherwise be excluded from mortgage borrowing
- People with lower credit scores
- Those with limited savings, especially if they can access down payment assistance or gifts
Check with a lender to learn whether you qualify for an FHA loan today.