How Much Is An FHA Loan Down Payment?

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FHA loans are mortgages insured by the Federal Housing Administration (FHA). They come with more flexible eligibility guidelines than conventional loans, including a low down-payment requirement. If you’re considering this option, here’s what you need to know about FHA loan down payments and other costs.

What is the minimum FHA loan down payment?

The minimum FHA loan down payment is either 3.5 percent or 10 percent of the home’s purchase price, depending on your credit score.

Say you’re buying a $400,000 house and using an FHA loan to fund the purchase. If you have a credit score of 620, you can put just 3.5 percent down, which amounts to $14,000. However, if your credit score is 560, you’ll need to put at least 10 percent down, which equals $40,000.

You cannot get an FHA loan with zero down.

How to save for an FHA loan down payment

To save up for a down payment for an FHA loan, begin by setting a goal. Consider:

You can boost your savings by cutting some expenses or using a money-saving app, but you don’t have to save the entire 3.5 percent — or 10 percent — on your own.

FHA loan down payment gift rules

FHA borrowers may use gift funds toward a down payment and closing costs. Gift funds for an FHA loan may come from:

• Family members
• Close friends
• An employer
• A labor union
• Nonprofit organizations

If you decide to use gift funds, your mortgage lender will likely require you to submit a gift letter.

You can’t use funds from the following types of people — also called “interested parties” — for a down payment:

• The home builder
• The home’s seller
• Your real estate agent or broker
• Anyone else with a vested interest in selling the home

However, interested parties can contribute up to 6 percent of the sale price toward a borrower’s closing costs.

FHA loan down payment assistance

Along with gifted funds, you can also apply down payment assistance to your FHA loan. There are many assistance programs out there, including through nonprofits, lenders and the government. For instance, some state housing finance agencies (HFAs) package assistance with first-time homebuyer loans.

Other programs, including ones run by lenders, offer grant money that you can use toward your FHA down payment.

FHA loan requirements

While some FHA loan requirements vary by lender, there are several you must meet. These include:

• The loan must be for your primary residence.
• You must have a credit score of at least 580 (500 if putting 10 percent down).
• You must make a minimum down payment of 3.5 percent (with at least a 580 credit score).
• Your back-end debt-to-income (DTI) ratio must be no more than 43 percent (50 percent in some cases).

Additional cost considerations for FHA loans

Along with the down payment, you’ll also need to budget for:

• FHA mortgage insurance premiums (MIP): MIP comes in two forms: upfront and annual. Your lender will charge you an upfront fee of 1.75 percent of the loan amount when you close that you can finance into the mortgage. You’ll also be charged an additional annual premium, which ranges from 0.15 percent to 0.75 percent of the loan amount, depending on your down payment and other factors. This fee is divided up and appears on your monthly bill.
• FHA loan closing costs: Typically, FHA closing costs are between 2 percent and 6 percent of the home’s purchase price.

Other low-down-payment mortgages

There are other types of mortgages that have either a low or no down-payment requirement. These include:

FAQ

• Why is the FHA loan down payment requirement more flexible than that of other loans?
  

  FHA loans are backed by the federal government, which makes lenders more willing to offer them to first-time homebuyers and other borrowers who may struggle when applying for conventional mortgages. Apart from requiring a down payment of just 3.5 percent, FHA loans also feature more relaxed credit guidelines than traditional home loans.

• Can I get seller concessions with an FHA loan?
  

  If you take out an FHA loan, the seller is allowed to contribute up to 6 percent of the home’s sales price in concessions. For example, if you buy a home for $300,000, the seller can offer up to $18,000 in concessions. You will not receive cash directly, as the concessions are applied directly to the closing costs and prepaid expenses.

• Can I use personal loans for the FHA down payment?
  

  Generally, mortgage lenders won’t allow you to use a personal loan for an FHA down payment. You’ll need to use your own funds, gift money or down payment assistance.