FHA Down Payments: How Low Can You Go, and What It Actually Costs
FHA loans let you put down as little as 3.5% of the home price, but that low down payment comes with mortgage insurance you'll pay for the life of the loan
An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency. The main draw is the down payment: you can buy a home with as little as 3.5% down instead of the 10% to 20% most conventional loans require. If you're buying a $200,000 home, that's $7,000 instead of $20,000 to $40,000 out of pocket.
The catch is mortgage insurance. Because the lender is taking more risk with a smaller down payment, you pay insurance premiums on top of your monthly mortgage payment. These premiums don't go away once you've built equity—they stay for the entire loan if you put down less than 10%. That insurance typically adds $100 to $300 per month to your payment, depending on the loan size and your credit score.
FHA loans also have stricter rules about the home itself and your finances than conventional loans do. The house must meet safety and structural standards, and your debt-to-income ratio (how much you owe compared to what you earn) usually can't exceed 43%. You'll also need a credit score of at least 580 to may have access to for the 3.5% down option; scores between 500 and 579 may get approved but typically require 10% down.
Key Takeaways
- FHA loans allow down payments as low as 3.5%, making homeownership possible with less savings upfront than conventional mortgages.
- Mortgage insurance premiums are mandatory and stay on your loan for the full term if you put down less than 10%, adding roughly $100 to $300 monthly.
- You need a credit score of at least 580 for the 3.5% down option, and the home must pass FHA inspection standards before closing.
- Your total monthly debt (mortgage, car loans, credit cards, student loans) cannot exceed 43% of your gross monthly income.
- FHA loans have limits on how much you can borrow, which vary by county and are set each year by the Department of Housing and Urban Development.
How the 3.5% down payment actually works
When you put 3.5% down on an FHA loan, you're covering only a small fraction of the home's price. The lender covers the rest, but they protect themselves by requiring you to buy mortgage insurance. This insurance doesn't protect you—it protects the lender if you stop paying.
The 3.5% down payment must come from your own funds or from an acceptable source like a gift from a family member, an employer, a nonprofit, or a government program. You cannot borrow the down payment. Some first-time homebuyer programs and down payment assistance programs can help cover this 3.5%, so if you have very little saved, research what's available in your state or county.
Beyond the down payment, you'll also pay an upfront mortgage insurance premium (UFMIP) at closing. This is a one-time fee, usually 1.75% of the loan amount, that gets rolled into your mortgage. On a $200,000 loan, that's $3,500 added to what you owe. You pay interest on this amount for the life of the loan.
Mortgage insurance premiums and what they cost over time
The annual mortgage insurance premium (MIP) is what you pay each month as part of your mortgage payment. The rate depends on your loan size, your down payment percentage, and the length of your loan. For a 30-year loan with 3.5% down, annual MIP typically runs between 0.55% and 0.80% of the loan amount per year, paid in monthly installments.
On a $200,000 loan, that means roughly $110 to $160 per month in insurance alone. Add the upfront premium rolled into your loan, and you're paying thousands in insurance costs over 30 years—money that builds no equity and doesn't reduce your principal.
The only way to remove mortgage insurance on an FHA loan is to refinance into a conventional loan once you have enough equity and your credit score qualifies. This typically requires 20% equity in the home and a credit score of 620 or higher. If your home appreciates or you pay down the principal quickly, you may reach 20% equity in 5 to 10 years, at which point refinancing could save you hundreds per month.
FHA loan limits and where they apply
The Department of Housing and Urban Development sets a maximum loan amount each year, and it varies by county. In lower-cost areas, the limit might be $472,030 (as of 2024, though this changes annually). In high-cost areas like parts of California or New York, the limit can exceed $1 million. You can find your county's specific limit on the HUD website by entering your zip code.
These limits matter because they cap how much you can borrow, regardless of your income or the home price. If you're buying in a high-cost area and the home price exceeds the county limit, you won't may have access to for an FHA loan—you'd need a conventional loan or a jumbo loan instead.
Debt-to-income ratio and income requirements
Lenders use your debt-to-income ratio (DTI) to decide whether you can afford the loan. This is your total monthly debt payments divided by your gross monthly income. For FHA loans, your DTI usually cannot exceed 43%. Some lenders may go up to 50% if you have strong compensating factors like a large savings account or a low credit card balance, but 43% is the standard.
To calculate yours, add up all monthly debt payments: mortgage (the new one you're applying for), car loans, student loans, credit cards, personal loans, child support, and alimony. Divide that total by your gross monthly income (before taxes). If you earn $5,000 per month and have $2,000 in total debt payments, your DTI is 40%, which qualifies.
This ratio is one reason why a low down payment doesn't automatically mean you can afford the home. A $200,000 home with a 3.5% down payment still requires a monthly mortgage payment of roughly $1,100 to $1,300 (depending on interest rates and insurance). If your other debts are high, that payment alone might push you over the 43% threshold.
Credit score requirements and what happens if yours is lower
FHA loans require a minimum credit score of 580 to put down 3.5%. If your score is between 500 and 579, you may still may have access to, but most lenders will require 10% down instead of 3.5%. Some lenders have higher minimums—620 or 640—so shop around if your score is in the 580 to 620 range.
Your credit score reflects your payment history, how much debt you're carrying, and how long you've had credit accounts open. If your score is below 580, you have options: wait and work on improving it (paying down debt, making on-time payments, and disputing errors on your credit report), or look into down payment assistance programs that may pair with FHA loans and have more flexible credit requirements.
Home inspection and appraisal standards
FHA loans require the home to pass an FHA appraisal, which is stricter than a standard appraisal. The appraiser checks not just the home's value but also its safety and condition. The roof must be in good shape, the foundation must be sound, plumbing and electrical systems must work, and there can't be significant mold, lead paint hazards, or pest damage.
If the home fails inspection, the seller must fix the issues before closing, or you can renegotiate the price. This protects you from buying a money pit, but it also means you can't buy a fixer-upper with an FHA loan—the home must be move-in ready or close to it. If you're drawn to homes that need work, a conventional loan or a cash purchase gives you more flexibility.
When an FHA loan makes sense versus other options
An FHA loan is strongest when you have limited savings but a stable income and decent credit. If you have $7,000 saved for a down payment on a $200,000 home but would need $40,000 for a conventional loan, FHA closes that gap. The mortgage insurance is a real cost, but it's the price of homeownership sooner rather than later.
An FHA loan is weaker if you plan to stay in the home for only a few years. Because mortgage insurance stays on the loan, you're paying thousands in insurance premiums that you'll never recover if you sell or refinance before reaching 20% equity. In that case, saving more for a larger down payment or waiting to buy might cost less overall.
Conventional loans with 5% to 10% down are worth comparing if your credit score is 620 or higher and you can scrape together a slightly larger down payment. Conventional mortgage insurance can sometimes be removed once you reach 20% equity, whereas FHA insurance is permanent. However, conventional loans typically require higher credit scores and larger down payments, so they're not always an option.
Frequently Asked Questions
Can I use a gift from family for the down payment?
Yes. The gift must come from a family member, and the lender will ask for a gift letter stating that the money is a gift, not a loan you have to repay. The lender may also ask for bank statements showing the gift was received. You cannot borrow the down payment from anyone.
What if the home doesn't pass the FHA appraisal?
The seller must repair the issues or credit you money at closing to cover repairs. If the seller won't do either, you can walk away from the deal without penalty. You cannot close on an FHA loan if the home fails inspection—the lender won't fund it.
Can I remove mortgage insurance before 30 years?
Only by refinancing into a conventional loan once you have 20% equity and may have access to based on credit score and income. FHA mortgage insurance itself cannot be removed while the loan is active. Refinancing costs money in closing costs, so calculate whether the monthly savings justify the upfront expense.
Do I have to be a first-time homebuyer to get an FHA loan?
No. FHA loans are open to anyone who meets the credit, income, and debt requirements. "First-time homebuyer" status can unlock some down payment assistance programs, but it's not required for the FHA loan itself.
What's the difference between the upfront mortgage insurance premium and the annual premium?
The upfront premium (UFMIP) is a one-time fee of about 1.75% of the loan amount, paid at closing and rolled into your mortgage. The annual premium (MIP) is paid monthly as part of your mortgage payment and protects the lender throughout the life of the loan. You pay both.