FHA loans require a down payment, but it can be as low as 3.5 percent of the home's purchase price
The Federal Housing Administration does not allow a zero-down mortgage. You must put money down. The minimum is 3.5 percent of what you are paying for the house. On a $200,000 home, that is $7,000. On a $300,000 home, that is $10,500.
The 3.5 percent floor applies to borrowers with a credit score of 580 or higher. If your score is between 500 and 579, some lenders will work with you, but they typically require 10 percent down instead. Below 500, most lenders will not offer an FHA loan at all.
The down payment comes from your own money or from a gift. It cannot come from a loan. Some lenders allow the gift to come from a family member, employer, nonprofit, or government agency—the rules vary by lender, so ask before you assume a particular source is allowed.
Key Takeaways
- FHA loans require a minimum down payment of 3.5 percent of the purchase price for borrowers with a credit score of 580 or higher.
- If your credit score is between 500 and 579, you may need to put down 10 percent instead, and some lenders will not work with you at all below 500.
- Your down payment must come from your own savings or a gift; it cannot be borrowed, though the source of a gift varies by lender.
- Even after you pay the down payment, FHA loans require mortgage insurance premiums, which add to your monthly payment and total cost.
Where the down payment money actually goes
When you make a down payment, you are buying equity in the house immediately. The lender finances the rest. On that $200,000 home with a 3.5 percent down payment, you put in $7,000 and borrow $193,000. You own the $7,000 worth of the house outright; the bank owns a claim against the rest until you pay the loan off.
The down payment also reduces the lender's risk. A smaller loan relative to the home's value means the lender loses less money if you stop paying and they have to foreclose and sell. That is why lenders charge lower interest rates to borrowers who put down more money—the risk is smaller.
FHA loans exist specifically to help borrowers who cannot save a large down payment. The trade-off is that you pay mortgage insurance to protect the lender's smaller equity cushion. That insurance is not optional on an FHA loan.
Mortgage insurance premiums on FHA loans
An FHA loan comes with two mortgage insurance charges. The first is an upfront mortgage insurance premium (UFMIP), usually 1.75 percent of the loan amount. On a $193,000 loan, that is roughly $3,378. Most borrowers roll this into the loan amount rather than paying it in cash at closing, which means you borrow it and pay interest on it over 30 years.
The second is an annual mortgage insurance premium (MIP), paid monthly as part of your regular payment. The rate depends on your down payment and the loan term. With a 3.5 percent down payment on a 30-year loan, the annual MIP is typically around 0.55 percent of the loan balance, split into 12 monthly payments. On a $193,000 loan, that works out to roughly $89 per month.
Unlike some conventional loans, FHA mortgage insurance does not go away when you reach 20 percent equity in the home. You pay it for the life of the loan unless you refinance into a conventional mortgage later—and refinancing requires you to have built enough equity and have a credit score high enough to may have access to.
How to gather proof of funds for your down payment
Lenders require documentation that the money is actually yours and that you have had it for a set period. Typically, you need to show bank statements from the last two months covering the account where the down payment money sits. The lender is checking that the funds are seasoned—meaning they have been in your account long enough that they are clearly your own money, not a short-term loan someone gave you.
If you are receiving a gift, the lender will ask for a gift letter from the person giving you the money. The letter must state that the money is a gift, not a loan, and that the giver does not expect repayment. Some lenders have a specific form they want you to use; ask before you ask the gift-giver to write anything.
If the gift comes from a family member, the lender may ask for proof that you are related—a birth certificate or marriage license. If it comes from an employer or nonprofit, they may ask for documentation of that relationship. Keep records of the transfer itself: a bank transfer receipt, a check, or a wire confirmation showing the money moved into your account.
Down payment assistance programs that work with FHA loans
Some state and local programs offer down payment help specifically for FHA borrowers. These are typically run by housing finance agencies, nonprofits, or community development organizations. The money may come as a grant (you do not repay it), a forgivable loan (you repay it only if you sell or refinance within a set time), or a second mortgage (you repay it over time).
To find programs in your area, contact your state housing finance agency or search the HUD website for down payment assistance resources. Your mortgage lender may also know of programs they work with regularly. Be aware that some programs have income limits, require you to take a homebuyer education course, or limit the types of homes you can buy (for example, owner-occupied only, no investment properties).
If you use a down payment assistance program, the lender still requires you to document where the money came from. Programs that provide grants typically give you a letter stating the funds are a gift and do not need to be repaid, which satisfies the lender's documentation requirement.
What happens if you cannot save 3.5 percent
If you cannot gather 3.5 percent of the purchase price, an FHA loan is not available to you right now. You have a few other paths: wait and save more, look into state or local down payment assistance, explore conventional loans with a lower credit score requirement (though these typically require a larger down payment), or consider a USDA loan if you are buying in a rural area and meet income limits (USDA loans can go to zero down for may be able to access borrowers).
Some first-time homebuyer programs through nonprofits or government agencies offer down payment help that can bridge the gap. These vary widely by location and income, so research what exists in your state and county. Your local housing authority or a HUD-approved housing counselor can point you toward programs you may not find on your own.
Frequently Asked Questions
Can a family member give me the down payment money?
Yes. The lender will ask for a gift letter from the family member stating the money is a gift and does not need to be repaid. You will also need to show the transfer into your account and may need to prove the relationship. Rules vary by lender, so confirm what documentation they need before asking for the money.
What if I have the down payment but my credit score is below 580?
Most lenders will not offer an FHA loan below 580. Some lenders work with scores between 500 and 579 but require 10 percent down instead of 3.5 percent. Below 500, FHA loans are extremely difficult to find. You may need to wait and rebuild your credit, or explore other loan types.
Do I have to pay the upfront mortgage insurance premium in cash at closing?
No. Most borrowers roll the upfront mortgage insurance premium into the loan amount, so you borrow it and pay interest on it over the life of the loan. You can pay it in cash if you want to reduce the total amount borrowed, but it is not required.
Can I get rid of mortgage insurance once I own 20 percent of the home?
Not while you keep the FHA loan. Unlike conventional mortgages, FHA mortgage insurance stays for the full loan term. You can refinance into a conventional loan once you have built enough equity and your credit qualifies, and that would let you drop the insurance.
What if the house costs more than I expected and I cannot afford the down payment?
Negotiate the price down with the seller, or look for a less expensive home. You could also increase the down payment to lower your monthly payment and mortgage insurance costs, if you can save more. Down payment assistance programs are another option if you may have access to by income and location.