FHA mortgages require a minimum down payment of 3.5 percent of the home's purchase price
An FHA mortgage is a loan insured by the Federal Housing Administration, a government agency. The 3.5 percent down payment is the lowest amount the FHA allows. If a home costs $200,000, your down payment would be $7,000. If it costs $300,000, your down payment would be $10,500.
This 3.5 percent rule applies whether you are buying your first home or your tenth. The percentage does not change based on your credit score, income, or how much savings you have beyond the down payment itself. However, you will also need to pay mortgage insurance — a monthly fee that protects the lender if you stop paying. This insurance is required for the life of the loan if you put down less than 10 percent, which most FHA borrowers do.
Some lenders allow you to borrow the down payment money from a family member or non-profit organization rather than paying it from your own savings. The money still counts toward your 3.5 percent, but you do not have to have saved it yourself. This option exists because many first-time homebuyers have steady income but little cash on hand.
Key Takeaways
- FHA mortgages require a minimum down payment of 3.5 percent of the purchase price, which is lower than conventional mortgages typically allow.
- You will pay mortgage insurance every month for the life of the loan if your down payment is less than 10 percent.
- The down payment can come from your own savings, a gift from a family member, or a loan from a non-profit organization.
- Your credit score and income affect whether a lender will approve you, but they do not change the 3.5 percent down payment requirement.
What happens if you put down more than 3.5 percent
Putting down more than 3.5 percent is allowed and can reduce your monthly costs. If you put down 10 percent or more, you can eventually stop paying mortgage insurance — usually after 11 years of on-time payments. If you put down less than 10 percent, you pay mortgage insurance for the entire loan, which typically lasts 15 or 30 years.
The tradeoff is straightforward: more money down now means lower monthly payments later. A larger down payment also means you borrow less money overall, so you pay less interest. However, you do not have to put down more than 3.5 percent to get an FHA mortgage. The choice depends on how much cash you have available and whether you want to reduce your monthly payment.
How to calculate your down payment amount
To find your down payment, multiply the home's purchase price by 0.035. If you are looking at a $250,000 home, the calculation is $250,000 × 0.035 = $8,750. That is your minimum down payment.
When you are shopping for homes, use this number to understand what price range fits your budget. If you have $10,000 saved, you can afford a home around $285,000 ($10,000 ÷ 0.035). If you have $15,000 saved, you can afford a home around $428,000. These are rough numbers because you will also need to cover closing costs — fees the lender and title company charge — which typically run 2 to 5 percent of the purchase price. Many lenders allow you to roll closing costs into the loan, but some require you to pay them upfront.
Where the down payment money can come from
Your own savings is the most straightforward source. You withdraw the money and bring it to closing, the final meeting where you sign the mortgage paperwork.
A gift from a family member is also allowed. The lender will ask for a signed letter from the person giving you the money, stating that it is a gift and not a loan you have to repay. The money must come from their personal account, not from a loan they took out. If a parent or grandparent gives you $8,000, that counts fully toward your down payment.
Some non-profit organizations and community development programs offer down payment grants or loans specifically for homebuyers. These vary by location and by the organization. Your lender can tell you whether any programs serve your area, or you can search your city or county's housing authority website.
You cannot use credit cards or personal loans to fund your down payment. Lenders check your debt before approving the mortgage, and new debt raises red flags. If you borrow money to make the down payment, the lender will count that loan as a monthly obligation when deciding whether you can afford the mortgage itself.
Closing costs are separate from your down payment
Your down payment and your closing costs are two different amounts. The down payment is the percentage of the home's price you pay upfront. Closing costs are fees charged by the lender, the title company, the appraiser, and other parties involved in the transaction.
Closing costs typically range from 2 to 5 percent of the purchase price. On a $250,000 home, that could be $5,000 to $12,500. You can sometimes roll these costs into your mortgage — meaning the lender adds them to the loan amount and you pay them back over time with interest. However, some lenders require you to pay closing costs in cash at closing. Ask your lender upfront which option they offer.
When you are budgeting for a home purchase, plan for both the down payment and closing costs. If you have $15,000 saved and the down payment is $8,750, you have about $6,250 left for closing costs. If your closing costs are higher, you may need to roll them into the loan or find additional funds.
How down payment size affects your monthly payment
A larger down payment lowers your monthly mortgage payment in two ways. First, you borrow less money, so the principal — the amount you owe — is smaller. Second, you may avoid or shorten the period of mortgage insurance payments.
On a $250,000 home with a 30-year mortgage at current interest rates, a 3.5 percent down payment ($8,750) means you borrow $241,250. With mortgage insurance included, your monthly payment might be around $1,400 to $1,500, depending on your interest rate and the insurance premium. If you put down 10 percent ($25,000), you borrow $225,000, and your monthly payment might be around $1,250 to $1,350. The difference is roughly $100 to $200 per month.
These numbers vary based on current interest rates, your credit score, and the specific lender. The point is that more down payment means lower monthly cost. However, the 3.5 percent option exists because many people cannot save a larger amount. Putting down 3.5 percent is a valid choice if that is what you can afford.
Frequently Asked Questions
Can I use a 401k or retirement account for my down payment?
Some plans allow you to borrow from your 401k without penalty if you are a first-time homebuyer. However, you will owe taxes on the money and may face penalties if you cannot repay the loan. Talk to your plan administrator and a tax professional before withdrawing. Many people find a family gift or down payment grant easier than raiding retirement savings.
What if I only have 2 percent saved?
FHA mortgages require 3.5 percent minimum. You cannot get an FHA loan with less. You could wait and save more, look for a down payment grant in your area, ask a family member for a gift, or explore other loan types. Some conventional loans allow lower down payments if you have good credit, though they typically require mortgage insurance.
Do I have to put down exactly 3.5 percent?
No. You can put down 3.5 percent, 5 percent, 10 percent, or any amount higher than 3.5 percent. The 3.5 percent is the minimum. Putting down more reduces your monthly payment and can eliminate mortgage insurance sooner.
Will my down payment amount change my interest rate?
Not directly. Your interest rate is set by the lender based on current market rates, your credit score, and the loan type. However, a larger down payment means you borrow less, so you pay less total interest over the life of the loan even if the rate itself stays the same.
Can I borrow my down payment from a friend instead of a family member?
Lenders are cautious about borrowed down payments because they want to know you have some of your own money at stake. If you borrow from anyone, the lender will require a signed statement saying whether it is a gift or a loan. If it is a loan, they will count it as a monthly debt obligation when deciding whether you can afford the mortgage.