What an FHA down payment is

An FHA down payment is the cash you put toward a home purchase when you borrow through an FHA loan, which is insured by the Federal Housing Administration. The FHA does not lend the money itself — a bank or mortgage lender does — but the FHA's insurance backs the loan, which lets lenders accept smaller down payments than they otherwise would.

The minimum FHA down payment is 3.5 percent of the home's purchase price. That means on a $200,000 home, you would put down $7,000. The remaining $193,000 comes from the FHA-insured loan. Because the down payment is so small, most borrowers who use FHA loans are first-time buyers or people who have not saved a large amount of cash.

The trade-off for a small down payment is that you pay mortgage insurance premiums — extra monthly costs added to your loan payment. These premiums protect the lender if you stop paying, and they stay on your loan for the life of it (or until you refinance into a non-FHA loan). The cost varies by loan amount and down payment size, but typically runs between 0.55 and 0.80 percent of your loan amount per year.

Key Takeaways

  • FHA down payments start at 3.5 percent of the home price, so a $200,000 home requires $7,000 down.
  • You pay mortgage insurance premiums for the life of the loan because the down payment is small, adding roughly $100 to $200 per month to a typical payment.
  • The cash for your down payment can come from savings, a gift from a family member, or a grant, but you must document where it came from.
  • Your credit score, debt-to-income ratio, and employment history matter more than your down payment size when a lender decides whether to approve you.
  • If you put down more than 3.5 percent, your mortgage insurance costs drop, but you still pay them for the full loan term.

Where the down payment money comes from

Your down payment must come from a source you can document. The most common sources are your own savings account, a gift from a family member, or a down payment grant from a nonprofit or government program. Some employers and unions also offer down payment information to their members.

If you receive a gift, the person giving it must sign a gift letter stating that the money is a gift and does not need to be repaid. The lender will ask to see the gift letter and bank statements showing the money moved from the gift-giver's account to yours. This step exists because lenders want to know you are not borrowing the down payment money — if you were, your actual debt would be higher than you reported.

You cannot use a credit card, a personal loan, or a line of credit to fund your down payment. The lender will ask about the source of every deposit into your account in the months before closing, so large unexplained transfers will raise questions and may delay your loan.

How down payment size affects your loan costs

The smaller your down payment, the higher your mortgage insurance premiums. An FHA loan with 3.5 percent down costs more per month than one with 10 percent down, even if the home price and interest rate are identical. The difference comes entirely from insurance.

On a $200,000 loan at 3.5 percent down, your mortgage insurance premium might add $150 to $180 per month. If you put 10 percent down on the same home, that premium might drop to $100 to $120 per month. The insurance stays for the entire loan term, so over a 30-year mortgage, a smaller down payment can cost you tens of thousands of dollars in extra premiums.

This is why some borrowers choose to put down more than 3.5 percent if they can. Putting down 5 or 10 percent does not disqualify you from FHA benefits, and it lowers your monthly costs. However, it also means you have less cash left over after closing, which can be a real problem if you face an emergency.

What lenders actually look at when deciding to approve you

Your down payment size matters far less than your credit score, income, and debt. Most FHA lenders want to see a credit score of at least 580 to 620, though some will go lower. They also calculate your debt-to-income ratio — the percentage of your monthly income that goes to debt payments. FHA loans typically allow ratios up to 43 to 50 percent, depending on the lender and your credit profile.

Your employment history and income stability matter more than a large down payment. If you have changed jobs frequently, been unemployed recently, or have irregular income, the lender will ask for more documentation and may require a larger down payment to offset the risk. Conversely, if you have stable employment and a good credit score, a 3.5 percent down payment is usually enough.

The lender will also order an appraisal to confirm the home is worth what you are paying for it. If the appraisal comes in low, you may need to renegotiate the price, put down more cash, or walk away from the deal. Your down payment does not protect you if the home is overpriced.

The difference between down payment and closing costs

Your down payment is separate from closing costs, and many first-time buyers confuse the two. The down payment is your equity in the home — the part you own outright. Closing costs are fees paid to the lender, appraiser, title company, and other parties involved in the transaction. These typically run 2 to 5 percent of the loan amount.

On a $200,000 home with a 3.5 percent down payment, you would bring $7,000 to closing as a down payment, plus another $4,000 to $10,000 in closing costs. Some FHA lenders allow sellers to pay part or all of your closing costs, which reduces the cash you need to bring. This is called a seller concession, and it is common in buyer-friendly markets.

How down payment requirements changed over time

The FHA has allowed 3.5 percent down payments since 2009, when the program was expanded during the housing crisis. Before that, the minimum was 5 percent. The 3.5 percent threshold has remained stable for over a decade, though the mortgage insurance premiums and other loan terms have shifted based on economic conditions and FHA claims history.

During periods when many FHA borrowers defaulted on loans, the FHA raised insurance premiums to build reserves. During stronger economic periods, premiums sometimes fell slightly. These changes affect your monthly payment but do not change the minimum down payment itself.

Frequently Asked Questions

Can I use a down payment grant to cover the full 3.5 percent?

Yes. Many nonprofits, state housing agencies, and local governments offer down payment grants specifically for FHA loans. These grants do not need to be repaid. You will need to research programs in your area and provide documentation of the grant to your lender. Some grants have income limits or require you to complete a homebuyer education course first.

What happens if I cannot save 3.5 percent before I want to buy?

You have several options: 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 state and local programs offer loans with even smaller down payments or grants that cover the down payment entirely. A mortgage lender or nonprofit housing counselor can tell you what programs exist where you live.

If I put down 10 percent instead of 3.5 percent, do I still pay mortgage insurance?

Yes. FHA loans require mortgage insurance regardless of down payment size. However, your insurance premium will be lower with 10 percent down than with 3.5 percent down, and you will save money over the life of the loan. The insurance stays for the full loan term unless you refinance into a conventional loan later.

Can my employer give me money for a down payment without it being a gift?

If your employer gives you money as a bonus or information program, it counts as income to you, not a gift. You will need to report it as such to the lender, and it may affect your debt-to-income calculation. A true gift from a family member or nonprofit does not count as income and does not affect your ratio.