The FHA minimum down payment is 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 minimum down payment is 3.5 percent—meaning if you buy a $200,000 home, you need $7,000 down. That is substantially lower than the 20 percent down payment conventional loans typically require.

The catch is that FHA loans require mortgage insurance, which protects the lender if you stop paying. This insurance costs money on top of your monthly mortgage payment and is built into your loan terms. The insurance premium depends on your down payment size and your credit score, so the actual cost to you varies.

FHA loans are available through banks, credit unions, and mortgage lenders—not directly from the government. The government only insures the loan; a private lender still approves you and holds the mortgage.

Key Takeaways

  • FHA loans require a minimum 3.5 percent down payment, which is lower than conventional loans but still requires real savings.
  • Mortgage insurance is mandatory on FHA loans and adds to your monthly payment for the life of the loan or until you reach 20 percent equity.
  • Your down payment can come from your own savings, a gift from a family member, or a grant program—but not from a loan.
  • A larger down payment (5 to 10 percent) lowers your mortgage insurance costs and builds equity faster, though it is not required.
  • Your credit score, debt-to-income ratio, and employment history matter as much as your down payment when a lender decides whether to approve you.

Where your down payment money can come from

Your down payment must come from your own funds, a family gift, or a grant—not from borrowed money. If you take out a loan to cover the down payment, lenders will count that loan as debt when they calculate whether you can afford the mortgage.

A family member can gift you the down payment with no strings attached. The lender will ask for a signed letter from the gift-giver stating it is a gift, not a loan, and may ask for bank statements showing the money moved. Some lenders require the gift to come from a close relative (spouse, parent, sibling, or grandparent), though this varies by lender.

Some nonprofits and local housing agencies offer down payment grants or information programs for first-time homebuyers. These are real money you do not have to repay. Search your city or county housing authority website or call 211 to find programs in your area. Availability and amounts vary widely by location.

How mortgage insurance affects your total cost

FHA mortgage insurance comes in two parts: an upfront premium and an annual premium. The upfront premium is typically 1.75 percent of the loan amount and is usually rolled into your mortgage (added to what you borrow) rather than paid at closing. The annual premium ranges from roughly 0.55 to 0.80 percent of your loan balance per year, depending on your down payment and credit score.

On a $200,000 home with 3.5 percent down, the upfront insurance premium would be about $3,500, added to your loan. Your annual insurance might run $100 to $130 per month. These costs stay with you for the life of the loan unless you eventually refinance into a conventional mortgage or reach 20 percent equity (which takes years on a 3.5 percent down payment).

A larger down payment directly lowers insurance costs. If you put 10 percent down instead of 3.5 percent, your annual insurance premium drops significantly, and you may be able to remove it once you reach 20 percent equity. The tradeoff is that you need more cash upfront.

What lenders look at beyond your down payment

Your down payment size is only one piece of the approval puzzle. Lenders also examine your credit score, debt-to-income ratio, employment history, and savings. An FHA loan does not lower these other requirements—it only lowers the down payment bar.

Most lenders want a credit score of at least 580 to 620 for an FHA loan, though some will go lower. Your debt-to-income ratio (the percentage of your monthly income that goes to debt payments) usually cannot exceed 43 to 50 percent, depending on the lender. You will need to show two months of recent pay stubs, tax returns from the past two years, and bank statements proving your down payment is yours.

If you have recent late payments, collections, or a bankruptcy, you may still may have access to for an FHA loan, but lenders will require waiting periods. A bankruptcy typically requires a two-year wait; a foreclosure requires three years. Late payments are judged on how recent they are and how many there are.

Closing costs are separate from your down payment

Your down payment covers only the equity you are building in the home. Closing costs—the fees for the appraisal, title search, loan origination, and other services—are separate and typically run 2 to 5 percent of the purchase price.

On a $200,000 home, closing costs might be $4,000 to $10,000. You can sometimes negotiate with the seller to cover part of these costs, or you can roll some of them into your loan. FHA rules allow sellers to pay up to 6 percent of the purchase price toward your closing costs and down payment combined, which can ease the burden.

Down payment information programs and what to expect

Many states, cities, and nonprofits run down payment information programs specifically for FHA borrowers. These programs may offer grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set period), or second mortgages at favorable terms.

To find programs in your area, start with your city or county housing authority website or call 211. You can also ask your mortgage lender—many have partnerships with information programs and can refer you directly. Programs often have income limits, first-time homebuyer requirements, and geographic restrictions, so availability depends on where you live and your household income.

Processing these programs takes time. If you are using information, budget an extra two to four weeks for the process and approval process on top of your mortgage timeline.

Frequently Asked Questions

Can I borrow money from someone to make my down payment?

No. If you borrow the down payment, lenders will count that loan as debt when calculating your debt-to-income ratio, which may disqualify you. A gift from a family member is allowed, but a loan is not. If you need help, look for down payment information programs instead.

What happens if I put down more than 3.5 percent?

Your mortgage insurance costs drop, and you build equity faster. At 10 percent down, your annual insurance premium is lower. Once you reach 20 percent equity, you can request to remove the insurance entirely. The tradeoff is needing more cash upfront.

Can I use a 401(k) or IRA withdrawal for my down payment?

Yes, but it comes with tax consequences and penalties. FHA loans do not prohibit it, but withdrawing early from retirement accounts typically triggers income tax and a 10 percent penalty. Consult a tax professional before doing this, as it may affect your debt-to-income ratio and tax filing.

Do I need to have the down payment saved for a certain amount of time?

Lenders typically want to see two months of bank statements showing the money in your account. They are checking that the funds are yours and not borrowed. If you receive a large deposit right before explore, be prepared to document where it came from.

What if I do not have any savings for a down payment?

Search for down payment information programs in your area through your city housing authority or 211. Some programs cover the full 3.5 percent down payment for may have access to buyers. Availability varies by location, so start your search early in the homebuying process.