What FHA Loans Actually Offer for Down Payments — and What They Don't
FHA loans do not include grants for down payments
The Federal Housing Administration (FHA) does not offer grants that reduce or eliminate your down payment. An FHA loan is a mortgage backed by the government, not a grant program. You still have to put money down — the difference is that FHA allows you to put down as little as 3.5 percent of the home's purchase price, whereas conventional loans typically require 5 to 20 percent.
If you have heard about "FHA grants," you may be thinking of down payment assistance programs run by state housing agencies, nonprofits, or local governments. Those are separate from FHA loans themselves. Many people layer an FHA loan with a down payment assistance program to reduce what they pay out of pocket, but the two are different tools.
Key Takeaways
- FHA loans require a down payment of at least 3.5 percent; there is no FHA grant that waives this.
- Down payment assistance programs exist through state housing agencies and nonprofits, but they are not part of the FHA loan itself.
- You can combine an FHA loan with a separate down payment assistance program if you meet that program's requirements.
- FHA loans charge mortgage insurance premiums (upfront and annual) that conventional loans do not, which adds to your total cost.
- Your credit score, debt-to-income ratio, and employment history matter more to FHA approval than your down payment size.
How much you actually need to put down with an FHA loan
With an FHA loan, your minimum down payment is 3.5 percent of the purchase price. On a $200,000 home, that is $7,000. On a $300,000 home, that is $10,500. You must have this money available and documented before closing.
The 3.5 percent can come from your own savings, a gift from a family member, or a down payment assistance program. If you use a gift, the lender will ask for a signed letter from the person who gave you the money stating it does not have to be repaid. If you use a down payment assistance program, that program pays the lender directly or reimburses you at closing.
Some FHA borrowers put down more than 3.5 percent if they have saved it or want to lower their monthly payment. There is no penalty for putting down more.
Where to find actual down payment assistance programs
Down payment assistance comes from state housing finance agencies, local housing authorities, nonprofits, and sometimes employers or community organizations. These are not FHA programs, but many of them work with FHA loans.
Start by contacting your state housing finance agency. You can find it through the National Council of State Housing Agencies website or by searching "[your state] housing finance agency." They maintain lists of active programs and can tell you which ones accept FHA borrowers.
You can also call 211 (a free referral line) and ask for down payment assistance in your area. Local nonprofits like NeighborWorks and community action agencies often run programs. Some programs are income-based, some are occupation-based (teachers, healthcare workers, first responders), and some target first-time homebuyers only.
Employer assistance is less common but worth asking about. Some large employers, unions, and government agencies offer down payment help as a benefit. Ask your HR department directly.
What FHA actually covers and what it costs
An FHA loan covers the mortgage itself — the amount you borrow to buy the home. It does not cover your down payment, closing costs, or inspections. However, FHA allows sellers to pay some of your closing costs, and some down payment assistance programs cover closing costs too.
FHA loans charge two mortgage insurance premiums that conventional loans do not. The upfront mortgage insurance premium (UFMIP) is 1.75 percent of the loan amount and is usually rolled into your mortgage. On a $193,000 loan (after your 3.5 percent down on a $200,000 home), that adds about $3,378 to what you owe. The annual mortgage insurance premium (MIP) is roughly 0.55 percent of the loan amount per year and is split into monthly payments. On that same $193,000 loan, that is about $106 per month.
These insurance premiums protect the lender if you stop paying. They do not protect you. You pay them for the life of the loan if you put down less than 10 percent, or for at least 11 years if you put down 10 percent or more.
FHA credit and income requirements that matter more than down payment size
FHA does not have a strict minimum credit score, but most lenders require 580 or higher. Some will go lower with a larger down payment or compensating factors (like savings, stable employment, or a co-borrower). Your credit history matters more than the size of your down payment.
Your debt-to-income ratio (DTI) is what you owe each month divided by what you earn each month. FHA allows up to 43 percent DTI, meaning your total monthly debts — including the new mortgage — can be up to 43 percent of your gross monthly income. Some lenders will stretch to 50 percent if you have strong compensating factors. This is often the real barrier to approval, not the down payment.
You must have been employed for at least two years and show stable income. Self-employed borrowers need two years of tax returns. Recent job changes are not automatic disqualifiers if the new job is in the same field.
How to combine an FHA loan with down payment assistance
If you find a down payment assistance program that works with FHA loans, the process is straightforward. You apply for the FHA loan first and get pre-approved. Then you apply for the down payment assistance program. The program will verify that you meet its requirements and that the home appraises at or above the purchase price (most programs require this).
At closing, the down payment assistance program sends its money to the title company or lender. Your down payment comes from that program, and you bring only the closing costs (or the program covers those too, depending on the program). You then sign the mortgage note and deed of trust for the FHA loan.
Some programs require you to repay the assistance as a second mortgage or a deferred loan (you pay it back when you sell or refinance). Others are true grants with no repayment. Read the program's terms carefully before you commit.
What disqualifies you from FHA loans or down payment assistance
FHA loans have few hard disqualifiers, but down payment assistance programs are stricter. Most programs require you to be a first-time homebuyer (defined as not owning a home in the past three years). Some limit income to a percentage of the area median income. Some require you to live in the home as your primary residence.
Recent bankruptcy or foreclosure can delay approval. FHA allows borrowers with a bankruptcy discharge after two years and a foreclosure after three years, but down payment assistance programs may have longer waiting periods or may not accept them at all.
If you have unpaid tax liens, child support arrears, or defaulted federal student loans, you will need to resolve those before most programs will consider you. Ask the program directly about your specific situation.
Frequently Asked Questions
Can I get an FHA grant to pay my down payment?
No. FHA loans are mortgages, not grants. You must put down at least 3.5 percent of the purchase price. However, you can combine an FHA loan with a separate down payment assistance program run by your state, county, or a nonprofit. That program may cover part or all of your down payment.
What if I do not have 3.5 percent saved?
Look for down payment assistance programs in your area through your state housing finance agency or by calling 211. If you have a family member willing to gift you the money, that counts toward your down payment. Some programs also allow you to use a gift from an employer or nonprofit.
Do I have to repay down payment assistance?
It depends on the program. Some assistance is a true grant with no repayment. Others are structured as a second mortgage or deferred loan that you repay when you sell the home or refinance. Always ask the program before you commit.
Will a larger down payment help me get approved for an FHA loan?
Putting down more than 3.5 percent can help if your credit score is low or your debt-to-income ratio is tight, but it is not the main factor. Lenders care more about your credit history, income stability, and total monthly debt. A larger down payment is useful but not a substitute for those.
Can I use a gift from anyone to cover my down payment?
Yes, but the lender requires a signed letter from the person stating the money is a gift and does not have to be repaid. The gift can come from a family member, employer, nonprofit, or religious organization. It cannot come from the seller or anyone with a financial interest in the sale.