FHA loans require a down payment, but it can be as low as 3.5 percent

The Federal Housing Administration does not offer zero-down mortgages. Every FHA loan requires you to put money down at closing. The minimum is 3.5 percent of the home's purchase price. On a $200,000 home, that means $7,000 out of pocket before you move in.

That 3.5 percent is the lowest down payment available through any mainstream mortgage program. Conventional loans typically require 5 to 20 percent down. VA loans (for military members and veterans) and USDA loans (for rural properties) do offer zero-down options, but FHA does not.

The 3.5 percent minimum applies to all FHA borrowers, regardless of credit score or income. It is a fixed requirement, not something you can negotiate away or waive.

Key Takeaways

  • FHA loans require a minimum 3.5 percent down payment; there is no zero-down option through the FHA program.
  • The down payment is calculated on the home's purchase price, so a lower-priced home means a smaller dollar amount due at closing.
  • If you cannot save 3.5 percent, a VA loan or USDA loan may offer zero-down alternatives, depending on your military status or property location.
  • Down payment information programs run by nonprofits and local governments can sometimes cover part or all of your 3.5 percent requirement.

Where the 3.5 percent comes from

You can cover your down payment through several sources. Savings you have set aside is the most straightforward. Family members can also gift you the money—the FHA allows down payment gifts with no limit on the amount, as long as the gift is documented in writing and the giver confirms they expect no repayment.

Some employers offer down payment information as part of their benefits package. Nonprofits and local housing agencies run down payment information programs that may cover part or all of your 3.5 percent. These programs vary widely by location and often have income limits or first-time homebuyer requirements. Your mortgage lender can point you toward programs in your area, or you can search through the National Council of State Housing Agencies' database.

You cannot borrow the down payment from another lender or use a credit card cash advance. The FHA requires that the money come from your own resources, a gift, or a formal information program.

How down payment information programs work

Down payment information comes in three main forms: grants (money you do not repay), forgivable loans (loans that disappear after you stay in the home for a set period), and second mortgages (loans you repay alongside your FHA mortgage).

Grants and forgivable loans are more common and more valuable to you, since you do not have to repay them. A forgivable loan might require you to live in the home for five to ten years; if you sell or move before that time, you may owe the balance back. Second mortgages add to your monthly payment and your total debt, so they are less attractive unless you have no other option.

may be able to access for these programs depends on income, first-time homebuyer status, and the location of the home. Some programs are limited to specific neighborhoods or counties. Your mortgage lender can tell you which programs you may be able to use, or you can contact your local housing authority directly.

What happens if you cannot save 3.5 percent

If down payment information is not available in your area or you do not meet the requirements, you have two alternatives: wait and save, or explore other loan types.

Waiting to save gives you time to build your down payment and improve your credit score, which can lower your interest rate. Even a few months of saving can make a difference, especially if you are looking at lower-priced homes where 3.5 percent is a smaller dollar amount.

VA loans and USDA loans are the only mainstream mortgage programs that allow zero-down purchases. A VA loan is available to military members, veterans, and some surviving spouses. A USDA loan is for homes in designated rural areas and is limited to borrowers with moderate income. Both have their own requirements and trade-offs, but they eliminate the down payment barrier entirely if you may have access to.

Down payment and mortgage insurance

The FHA requires mortgage insurance on every loan, regardless of how much you put down. This is different from conventional loans, where mortgage insurance is only required if you put down less than 20 percent.

FHA mortgage insurance has two parts: an upfront premium (usually 1.75 percent of the loan amount, added to your mortgage) and an annual premium (paid monthly as part of your mortgage payment). The annual premium ranges from 0.55 to 0.80 percent of the loan amount per year, depending on your loan amount and how much you put down.

On a $200,000 home with 3.5 percent down, the upfront insurance premium adds about $3,500 to your loan balance. The annual premium adds roughly $100 to $160 per month. These costs are built into your monthly payment, so you do not pay them separately.

How to move forward with an FHA loan

Start by contacting FHA-approved lenders in your area. You can find them through the HUD website or by asking your real estate agent. A lender can tell you what down payment information programs exist in your location and whether you meet their requirements based on your income and credit history.

Before you meet with a lender, gather documentation: recent pay stubs, tax returns from the past two years, bank statements showing your savings, and a list of any debts you carry. This speeds up the process and gives the lender a clear picture of what you can afford.

If you are not ready to buy yet, ask the lender about first-time homebuyer courses in your area. Many are free or low-cost and can help you understand the mortgage process, improve your credit, and learn about down payment information. Some programs require you to complete a course before you can use their information funds.

Frequently Asked Questions

Can I use a personal loan to cover my down payment?

No. The FHA requires that your down payment come from your own savings, a gift from a family member, or a formal down payment information program. Personal loans, credit cards, and loans from friends count as borrowed money and disqualify the funds. Your lender will ask where the money came from and may request bank statements to verify.

What if I only have 2 percent saved?

You cannot close on an FHA loan without the full 3.5 percent. You would need to either save more, find a down payment information program, or wait. Some information programs can cover the gap between what you have saved and the 3.5 percent requirement, so it is worth checking with your lender or local housing authority before giving up.

Does a larger down payment lower my monthly payment?

Yes, but only slightly. A larger down payment means you borrow less, which lowers your principal and interest. However, the FHA mortgage insurance does not decrease if you put down more than 3.5 percent, so the savings are modest. On a $200,000 home, putting down 10 percent instead of 3.5 percent saves roughly $30 to $50 per month, depending on your interest rate.

Can I get an FHA loan with bad credit and no down payment saved?

FHA loans are available to borrowers with credit scores as low as 500, so bad credit alone does not disqualify you. However, you still need the 3.5 percent down payment. If you have no savings, your only path forward is a down payment information program. Ask your lender which programs serve borrowers with lower credit scores in your area.