How FHA Down Payments Work and What You Actually Need to Bring
What an FHA down payment is and how much you need
An FHA down payment is the money you put toward a home purchase using a loan backed by the Federal Housing Administration. The FHA itself does not lend you money — a bank or mortgage lender does — but the FHA insures the loan, which means the lender takes less risk and can offer you terms a conventional loan might not.
The minimum FHA down payment is 3.5 percent of the home's purchase price. If you are buying a home for $200,000, your down payment would be $7,000. The remaining $193,000 comes from the FHA-backed mortgage. This 3.5 percent floor is lower than the 5 to 20 percent many conventional loans require, which is why FHA loans exist — to make homeownership possible for people who have not saved a large lump sum.
You can put down more than 3.5 percent if you have it. Putting down 10 or 15 percent instead of 3.5 percent lowers your monthly payment and reduces the total interest you pay over the life of the loan, but it is not required.
Key Takeaways
- FHA down payments start at 3.5 percent of the home price, and the FHA-backed mortgage covers the rest.
- Your credit score, debt-to-income ratio, and employment history matter more than a large down payment because the lender is assessing your ability to repay.
- You will pay mortgage insurance premiums (an upfront fee and a monthly charge) as part of the FHA loan, which protects the lender if you stop paying.
- Down payment money can come from your own savings, a gift from a family member, or a down payment assistance program, but you must document where it came from.
- The lender will order an appraisal to confirm the home is worth what you are paying; if it is worth less, you may need to bring more cash or renegotiate the price.
Where your down payment money can come from
Your down payment must come from a source you can document. The lender will ask for bank statements, gift letters, or proof from a down payment assistance program — they need to know the money is real and that you did not borrow it from someone else (which would increase your debt and change whether you can afford the loan).
Personal savings is the most straightforward source. The lender will review your bank statements for the past two months to confirm the money has been sitting there and is not a sudden deposit you cannot explain.
A gift from a family member is allowed. The person giving you the money must sign a gift letter stating they are not expecting you to repay them. The lender will verify the gift came from their account to yours. Some lenders have rules about how close the family member must be to you, so ask before you accept the gift.
Down payment assistance programs run by nonprofits, local governments, or employers may cover part or all of your 3.5 percent down payment. These programs vary widely by location and by your income, so you will need to research what exists in your area. Some programs are grants (you do not repay them), and some are forgivable loans (you repay them only if you sell the home within a certain number of years).
How mortgage insurance premiums work with an FHA loan
When you take out an FHA loan, you pay for mortgage insurance — a fee that protects the lender if you stop making payments. This is different from homeowners insurance, which protects your home from fire and theft. Mortgage insurance is a cost of the FHA loan itself.
The upfront mortgage insurance premium (UFMIP) is typically 1.75 percent of your loan amount. On a $193,000 loan, that is about $3,378. You can pay this in cash at closing, or the lender can roll it into your loan balance, which means you borrow it and pay interest on it over 30 years. Most borrowers roll it in because they do not have extra cash at closing.
The annual mortgage insurance premium (MIP) is a monthly charge added to your mortgage payment. The rate depends on your down payment size and the length of your loan. If you put down 3.5 percent on a 30-year loan, your MIP might be around 0.55 percent of the loan amount per year, paid in monthly installments. If you put down 10 percent, the rate is lower. You can look up the current rates on the FHA's website, but your lender will give you the exact number for your situation.
You will pay MIP for the life of the loan if you put down 3.5 percent. If you put down 10 percent or more, you can stop paying MIP after 11 years. This is one reason putting down more than 3.5 percent saves money over time.
What the lender will check before approving your down payment
The lender does not just look at how much money you have. They assess whether you can actually repay the loan by reviewing your credit score, your debt-to-income ratio, and your employment history.
Your credit score needs to be at least 580 to may have access to for an FHA loan with a 3.5 percent down payment. Scores between 580 and 619 are considered higher risk, so the lender may charge a higher interest rate or require a larger down payment. Scores of 620 and above get better terms. The lender will pull your credit report and look at late payments, collections, and how much of your available credit you are using.
Your debt-to-income ratio is the total of all your monthly debt payments divided by your gross monthly income. The FHA allows up to 50 percent, though most lenders cap it at 43 percent. If you earn $4,000 per month and already owe $1,200 on a car loan and credit cards, your new mortgage payment (including taxes, insurance, and mortgage insurance) cannot exceed $720 or you will exceed the 43 percent threshold. The lender calculates this before approving you.
Your employment history matters because the lender wants to know your income is stable. If you changed jobs in the past two years, the lender will ask why and may require a letter from your new employer confirming your position and pay. Self-employed borrowers need to provide two years of tax returns.
The appraisal and what happens if the home is worth less than the price
After you make an offer on a home, the lender orders an appraisal — an independent assessment of what the home is actually worth. The appraiser looks at comparable homes that sold recently in the same area, the condition of the home, and its features.
If the appraisal comes in at or above your purchase price, you move forward. If it comes in below the purchase price, you have three options: renegotiate the price down with the seller, bring more cash to the closing table to make up the difference, or walk away from the deal. You cannot borrow the difference — the lender will only finance up to what the home is appraised for.
This is why having some savings beyond your 3.5 percent down payment is useful. If you planned to put down exactly $7,000 on a $200,000 home and the appraisal comes in at $190,000, you would need to bring an extra $3,000 in cash or ask the seller to lower the price.
Closing costs and what else you need to bring besides the down payment
Your down payment is only one part of what you pay at closing. You will also pay closing costs — fees for the appraisal, title search, title insurance, loan origination, underwriting, and other services. Closing costs typically run 2 to 5 percent of the loan amount, or $3,860 to $9,650 on a $193,000 loan.
Some closing costs can be paid by the seller or rolled into your loan, but you will usually need to bring cash for at least some of them. The lender will give you a Closing Disclosure document three days before closing that lists every cost. Review it carefully so you know exactly how much cash to bring.
You will also need to bring a government-issued photo ID, proof of homeowners insurance (the lender requires this before they will fund the loan), and a cashier's check or arrange a wire transfer for your down payment and closing costs. Ask your lender what form of payment they accept.
How FHA loans compare to conventional loans on down payment requirements
An FHA loan lets you put down 3.5 percent. A conventional loan typically requires 5 to 20 percent down, though some lenders offer 3 percent conventional loans. If you put down less than 20 percent on a conventional loan, you pay private mortgage insurance (PMI), which is similar to FHA mortgage insurance but usually costs more per month.
The trade-off is that FHA loans are easier to get if your credit is not perfect. A credit score of 580 qualifies you for an FHA loan; most conventional lenders want 620 or higher. If your score is between 580 and 619, an FHA loan is often your only option.
FHA loans also allow higher debt-to-income ratios (up to 50 percent versus 43 percent for many conventional loans) and are more forgiving if you have had a bankruptcy or foreclosure in the past. If you are a first-time buyer or have had credit problems, FHA is usually the faster path to homeownership.
Frequently Asked Questions
Can I use a down payment assistance program and still get an FHA loan?
Yes. Many down payment assistance programs are designed specifically for FHA borrowers. The program money counts toward your 3.5 percent down payment, and you can combine it with your own savings or a gift. You will need to document where every dollar came from, so keep all paperwork from the assistance program.
What if I do not have 3.5 percent saved yet?
Research down payment assistance programs in your area through your city or county housing authority, nonprofit organizations, or your employer. Some programs cover the entire 3.5 percent. You can also ask family members for a gift. If neither option is available, you may need to wait and save, or explore whether a conventional loan with a lower credit score requirement might work for your situation.
Do I have to pay the upfront mortgage insurance premium in cash at closing?
No. Most borrowers roll the upfront premium into the loan balance so they do not need extra cash at closing. This means you pay interest on it over 30 years, which costs more in the long run, but it is the most common choice when cash is tight.
Can I remove mortgage insurance from my FHA loan later?
If you put down 3.5 percent, you cannot remove mortgage insurance — you will pay it for the full 30 years. If you put down 10 percent or more, you can stop paying the annual mortgage insurance premium after 11 years. Some borrowers refinance into a conventional loan once their home value rises or their credit improves, which also removes mortgage insurance.
What if the seller will not accept an FHA offer?
Some sellers avoid FHA offers because they think the appraisal will be stricter or the process slower. In reality, FHA appraisals are not more rigorous — they just check that the home is safe and habitable. If a seller refuses an FHA offer, you can make a conventional offer instead, but you will need a larger down payment or a higher credit score. You can also look for a different home.