What Are The FHA Loan Down Payment Requirements?

One of the initial costs of buying a house is a down payment, which is a percentage of the home’s purchase price. Your down payment requirement will depend on factors like the type of mortgage, your credit score, your debt-to-income ratio (DTI) and other personal factors.

If you take out an FHA loan, you’ll have to make a down payment that meets the guidelines set by the Federal Housing Administration (FHA).

How much money is needed for a down payment on a home purchased with an FHA loan? Are there down payment assistance programs or other resources that can help home buyers make a down payment on an FHA loan? We’ll go over these points and more.

How Can Buyers Get Approved For An FHA Loan?

You can qualify for an FHA loan with a FICO^® Score as low as 500, but your score will affect your minimum down payment.

If your credit score is between 500 and 579, you’re required to put 10% down. If your credit score is 580 or above, an FHA home loan will require a down payment of 3.5% of the purchase price. This means the minimum down payment for an FHA loan is 3.5%.

Let’s consider an example. If you’re planning to buy a home for $250,000 and your score is at least 580, you’ll need a $8,750 down payment. Your minimum down payment will be $25,000 if your credit score is between 500 and 579.

Additional Costs To Close On An FHA Loan

A down payment isn’t the only financial commitment needed to close on an FHA loan. You’ll also need to pay closing costs, a mortgage insurance premium and an annual mortgage insurance premium.

Closing Costs

In addition to your down payment, you can expect to pay 3% – 6% of the home’s purchase price in FHA closing costs. Looking at our example of the $250,000 home purchase, you’ll pay about $7,500 – $15,000 in closing costs on an FHA mortgage loan.

FHA home buyers can ask for seller concessions to help reduce how much cash they’ll need to bring to the closing table. With an FHA loan, the seller can agree to contribute up to 6% of the home sale price toward closing costs.

An Upfront Mortgage Insurance Premium

FHA home loans also require home buyers to pay an FHA mortgage insurance premium (MIP). When you close on the home sale, you’ll pay an upfront FHA MIP of 1.75% of the total loan amount. For a $250,000 home, that would mean paying an upfront MIP of $4,375. You can either pay this total amount at the closing table or roll it into your loan balance and monthly payments.

An Annual Mortgage Insurance Premium

The annual MIP amount your lender requires will depend on factors like the length of your loan term, your loan-to-value ratio (LTV) and your down payment. Mortgage lenders typically include your annual MIP in your monthly mortgage payments.

Why Is The FHA Loan Down Payment Requirement More Flexible Than Other Loans?

The Federal Housing Administration has provisions that can make it easier to meet the down payment requirement of an FHA loan.

FHA Gift Rules

The FHA has generous rules surrounding FHA gift funds, or cash that’s gifted to help home buyers make an FHA loan down payment. These rules make it easier for a community to contribute to the home buyer in ways that regulations on conforming loans don’t allow.

The approved list of donors includes:

• A borrower’s family member
• A borrower’s employer or labor union
• A close friend with a clearly defined interest in the borrower
• A charitable organization
• A governmental agency assisting low/moderate-income families or first-time home buyers

You can’t receive the gift from anyone with a financial interest in the home buying transaction, including:

• The seller of the property
• Real estate agents
• The lender
• The home builder

Lower Credit Score Requirement

If you’re comparing FHA and conventional loans, FHA loans have more lenient credit requirements. Let’s review the credit score requirement for each down payment amount on an FHA loan.

If you have a credit score of 580 or higher, the minimum down payment requirement is 3.5%.

If you have a score between 500 and 579, the minimum down payment requirement is 10%.

Is Down Payment Assistance Available For FHA Loans?

Down payment assistance is available, particularly for first-time home buyers. Home buyers can explore a variety of FHA down payment assistance options, particularly at the state and local level. These assistance programs typically come in the form of loans, grants and matched savings programs.

The U.S. Department of Housing and Urban Development (HUD) also maintains a database of local home buying assistance programs. The HUD database includes information on down payment assistance programs as well as other home buying resources.

Other Low Down Payment Mortgage Options

An FHA loan is just one example of a loan option that has a low down payment requirement. While finding a loan that allows you to buy a house with no money down isn’t very common, VA and USDA loans do offer eligible borrowers a down payment as low as 0%. Keep in mind that Rocket Mortgage® no longer accepts USDA loan applications.

Qualifying borrowers can also apply for Freddie Mac’s Home Possible^® or Fannie Mae’s HomeReady^® loan program and make a down payment as low as 3%. Check out these loan programs to see how you qualify.

The Bottom Line: FHA Loan Down Payments Are More Affordable

FHA loans can be a great option for low- and moderate-income wage earners and those who might not meet traditional credit requirements for a home loan. With a 3.5% minimum down payment and a little patience when searching for your next home, you can consider an FHA home loan as an affordable option.

Ready to start your FHA mortgage journey? Find out more about FHA loans and if this loan is right for you.