FHA loans require a minimum down payment of 3.5 percent of the home's purchase price
An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency. The 3.5 percent down payment is the smallest amount you can put down and still get an FHA loan. If you are buying a home for $200,000, your down payment would be $7,000. The remaining $193,000 comes from the loan itself.
You can put down more than 3.5 percent if you have the money. Some people put down 5 percent, 10 percent, or more. The higher your down payment, the less you borrow, and the lower your monthly payment will be. But FHA loans are designed for people who do not have a large amount saved, so 3.5 percent is the standard target.
The down payment is separate from closing costs, which are fees paid to the lender, appraiser, and title company. Closing costs typically run 2 to 5 percent of the home price on top of your down payment. You may be able to ask the seller to cover some closing costs, or you may find a lender who will roll them into the loan.
Key Takeaways
- FHA loans let you put down as little as 3.5 percent of the home price, which is lower than most conventional mortgages.
- The down payment and closing costs are two separate expenses, and you need to budget for both.
- You must have a credit score of at least 580 to may have access to for the 3.5 percent down payment option; a score of 500 to 579 requires 10 percent down.
- FHA loans require mortgage insurance, which protects the lender if you stop paying, and this cost is added to your monthly payment.
- The money for your down payment can come from your own savings, a gift from a family member, or a grant program in your state or city.
Credit score requirements tied to down payment size
Your credit score determines whether you can use the 3.5 percent option or whether you need to put down more. A credit score is a three-digit number that lenders use to judge how reliably you have paid debts in the past.
If your credit score is 580 or higher, you can put down 3.5 percent. If your score is between 500 and 579, you must put down at least 10 percent. If your score is below 500, most lenders will not offer you an FHA loan at all, though some specialized lenders may work with you.
You can check your credit score for free through websites like AnnualCreditReport.com, which is the official site run by the three major credit bureaus. Knowing your score before you talk to a lender saves time, because you will already know which down payment option is available to you.
Where the down payment money comes from
The down payment must come from a source you can document. The most straightforward source is your own savings account. You will need to show the lender bank statements proving the money has been there for at least two months.
A family member can also give you money as a gift. The lender will ask you to sign a letter stating that the money is a gift and does not need to be repaid. The person giving the gift does not have to be related to you, but the lender will want to see proof that the money came from their account to yours.
Some states and cities run down payment information programs that give grants or low-interest loans to first-time homebuyers. These programs vary widely by location. You can search for programs in your area through the HUD website (HUD.gov) or by calling 211, which connects you to local resources.
Mortgage insurance is required with FHA loans
Because FHA loans allow smaller down payments, the lender requires mortgage insurance to protect themselves. Mortgage insurance is a monthly fee added to your payment if you default on the loan. It is not the same as homeowners insurance, which protects your house from fire and theft.
FHA loans have two mortgage insurance costs. The first is an upfront premium, usually 1.75 percent of the loan amount, which is added to your loan balance when you close. If you borrow $193,000, the upfront premium would be about $3,378, bringing your total loan to roughly $196,378.
The second is an annual premium paid monthly. The amount depends on your down payment and your loan size. With a 3.5 percent down payment, the annual premium is typically 0.55 percent of the loan amount, divided into 12 monthly payments. This premium stays on your loan for the life of the loan, even after you have paid off half of it.
How down payment size affects your total loan cost
Putting down more than 3.5 percent lowers your monthly payment in two ways. First, you borrow less money, so the base payment is smaller. Second, a larger down payment can lower your mortgage insurance rate.
If you put down 10 percent instead of 3.5 percent on a $200,000 home, you would borrow $180,000 instead of $193,000. That is $13,000 less to repay. Your mortgage insurance rate would also drop slightly, from 0.55 percent to roughly 0.50 percent annually. Over a 30-year loan, these differences add up to thousands of dollars in savings.
However, saving for a larger down payment takes time, and during that time you are paying rent. If you can afford the 3.5 percent down payment now and start building equity in a home, that may be better than waiting years to save more. A lender can show you the exact monthly payment for different down payment amounts so you can compare.
Minimum down payment rules by loan type
FHA loans are one of several loan types available to homebuyers. Each has different down payment rules. Understanding the differences helps you decide which loan fits your situation.
| Loan Type | Minimum Down Payment | Credit Score Requirement |
|---|---|---|
| FHA | 3.5% (or 10% if score is 500–579) | 580 or higher for 3.5% |
| VA (for military) | 0% (no down payment required) | Varies by lender |
| USDA (rural areas) | 0% (no down payment required) | 620 or higher |
| Conventional | 3% to 20% | 620 or higher |
If you are a veteran or active-duty service member, a VA loan requires no down payment at all. If you are buying in a rural area, a USDA loan also requires zero down. Conventional loans, which are not backed by a government agency, typically require at least 3 percent down but often ask for more.
Each loan type has different rules about credit score, income, and the types of properties you can buy. Talking to a lender about all your options helps you find the loan that costs the least over time.
Frequently Asked Questions
Can I borrow the down payment from someone instead of getting a gift?
No. The lender will ask you to document where the down payment comes from, and a loan from anyone — family or otherwise — must be repaid. That debt counts against your borrowing power. A gift, which does not need to be repaid, is what lenders accept. If someone wants to help, ask them to give it as a gift and sign a gift letter.
What if I do not have 3.5 percent saved yet?
You have several options. You can save for a few more months. You can look for a down payment information program in your state or city through HUD.gov or by calling 211. You can ask a family member for a gift. Or you can explore other loan types like VA or USDA loans if you meet their requirements.
Does the seller ever pay the down payment?
The seller cannot pay your down payment directly, but they can offer a credit toward closing costs, which frees up your money for the down payment. For example, if the seller agrees to pay $5,000 in closing costs, you can use that $5,000 for your down payment instead. Ask your real estate agent whether this is negotiable in your market.
Is mortgage insurance the same as homeowners insurance?
No. Mortgage insurance protects the lender if you stop paying the loan. Homeowners insurance protects your house from fire, theft, and weather damage. You must have both. Homeowners insurance is required by the lender; mortgage insurance is required because of the low down payment.
Can I remove mortgage insurance after I pay off part of the loan?
With FHA loans, mortgage insurance stays for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more, mortgage insurance drops after 11 years. Conventional loans allow you to remove mortgage insurance once you have paid down to 80 percent of the home's value, which usually takes 8 to 12 years.