FHA down payments start at 3.5 percent of the home price

The Federal Housing Administration (FHA) requires a minimum down payment of 3.5 percent of the purchase price. This is one of the lowest down payment thresholds available for mortgages. On a $200,000 home, that means putting down $7,000. On a $300,000 home, $10,500.

The 3.5 percent figure applies if your credit score is 580 or higher. If your score falls between 500 and 579, FHA rules allow a down payment of 10 percent instead. Most lenders will not work with scores below 500, though some do.

The down payment is not the only money you pay upfront. FHA loans also require an upfront mortgage insurance premium (UFMIP), which is typically 1.75 percent of the loan amount. This gets rolled into your mortgage, so you do not pay it in cash at closing—but you do pay interest on it for the life of the loan. You will also pay an annual mortgage insurance premium (MIP) each month as part of your mortgage payment.

Key Takeaways

  • FHA loans require a minimum 3.5 percent down payment if your credit score is 580 or above; 10 percent if your score is between 500 and 579.
  • The upfront mortgage insurance premium (1.75 percent of the loan amount) is added to your loan balance, not paid in cash at closing.
  • You will pay monthly mortgage insurance for the life of the loan if you put down less than 10 percent, or for at least 11 years if you put down 10 percent or more.
  • Your total cash needed at closing includes the down payment, closing costs (typically 2 to 5 percent of the purchase price), and any prepaid items like property taxes and homeowners insurance.

What counts toward your down payment

Your own savings count. So do gifts from family members—but the lender will require a signed gift letter stating the money is a gift, not a loan you have to repay. Some lenders allow gifts from employers, nonprofits, or government programs; others do not. Ask your lender before you accept a gift from anyone other than a relative.

Sweat equity—the value of work you do yourself on the property—does not count. Neither does a promise to pay later. The money must be in your bank account or transferred to the title company before closing.

If you are a first-time homebuyer, you may be able to withdraw money from a traditional or Roth IRA without the usual 10 percent early withdrawal penalty. The limit is $10,000 lifetime per person. You still owe income tax on the withdrawal in the year you take it. This option exists, but it reduces your retirement savings, so weigh it carefully against other sources.

How the down payment affects your monthly payment

A smaller down payment means a larger loan amount, which means a higher monthly mortgage payment. It also means you pay more in total interest over the life of the loan. On a $200,000 home, the difference between putting down 3.5 percent ($7,000) and 10 percent ($20,000) adds roughly $100 to $150 to your monthly payment, depending on interest rates and loan term.

The mortgage insurance premium also depends on your down payment. If you put down less than 10 percent, you pay MIP for the entire 30-year loan (or whatever term you choose). If you put down 10 percent or more, MIP drops off after 11 years of on-time payments. This is one reason some buyers stretch to save a larger down payment—the long-term savings on insurance can be substantial.

Closing costs and cash needed at closing

Your down payment is only part of what you need in cash. Closing costs—paid to the lender, title company, appraiser, and other service providers—typically run 2 to 5 percent of the purchase price. On a $200,000 home, that is $4,000 to $10,000.

You will also prepay certain items: property taxes for the remainder of the year, homeowners insurance for the first year, and property taxes and insurance that go into an escrow account (usually two months' worth of each). These vary by location and season of purchase.

Add it up: on a $200,000 home with a 3.5 percent down payment, you might need $15,000 to $25,000 in total cash at closing. Some lenders allow sellers to pay a portion of your closing costs, which reduces the cash you bring. Ask your lender what is negotiable in your market.

Down payment assistance programs

Some states, cities, and nonprofits offer down payment assistance for FHA borrowers, particularly first-time buyers. These programs may grant you money (which you do not repay), offer a low-interest loan, or provide a second mortgage that you repay after the primary loan is paid off. The terms and availability vary widely by location.

Your lender or a local housing counselor can tell you what programs exist in your area. HUD-approved housing counseling agencies offer free guidance and can point you toward local resources. You can find one through the HUD website or by calling 1-800-569-4287.

Be cautious of programs that charge upfront fees or promise may provide results. Legitimate assistance does not cost money to explore.

Comparing FHA to conventional loans

Conventional loans typically require 5 to 20 percent down, though some programs go as low as 3 percent. If you put down less than 20 percent on a conventional loan, you pay private mortgage insurance (PMI), which is similar to FHA's MIP but often costs more per month. PMI can be removed once you reach 20 percent equity in the home.

FHA loans are easier to get if your credit is lower or your debt is higher. Conventional loans usually require a credit score of 620 or higher and stricter debt-to-income ratios. If you have the credit and income for a conventional loan, compare the total cost—down payment plus insurance plus interest—over the life of the loan. Sometimes FHA is cheaper; sometimes conventional is. The math depends on your specific situation.

Frequently Asked Questions

Can I borrow the down payment from someone?

No. The down payment must come from your own funds or a gift. If you borrow money, the lender counts it as debt when calculating whether you can afford the mortgage. A gift must be documented with a signed letter stating it is not a loan.

What happens if I do not have 3.5 percent saved?

You cannot get an FHA loan without the down payment. However, down payment assistance programs in your area may cover part or all of it. Contact a HUD-approved housing counselor to learn what is available where you live.

Does the down payment affect my interest rate?

Not directly. Your interest rate is set by the lender based on market conditions, your credit score, and loan term. A larger down payment does not lower your rate, but it does lower your monthly payment by reducing the loan amount.

Can I put down more than 3.5 percent?

Yes. Putting down 5, 10, or 20 percent is allowed. A larger down payment lowers your monthly payment and can reduce or eliminate mortgage insurance costs over time, but it is not required.

What if my credit score is below 580?

FHA rules require 580 or higher for the 3.5 percent down payment. Scores between 500 and 579 require 10 percent down. Most lenders do not work with scores below 500, though some do—ask your lender directly.