FHA Loans and Down Payments: What You Actually Need to Put Down

FHA loans let you buy a home with as little as 3.5% down

An FHA loan is a mortgage insured by the Federal Housing Administration, and it requires a smaller down payment than conventional loans. The minimum down payment is 3.5% of the home's purchase price. That means on a $200,000 home, you would put down $7,000 instead of the 10% to 20% many conventional lenders require.

The trade-off is that you pay mortgage insurance — a monthly fee added to your mortgage payment that protects the lender if you stop paying. This insurance stays on your loan for the life of the mortgage if you put down less than 10%, or for at least 11 years if you put down 10% or more. The cost varies based on the loan amount and your credit score, but it typically runs between 0.55% and 1.3% of your loan amount per year.

FHA loans are available through banks, credit unions, and mortgage lenders — not directly from the government. You apply through a lender, just as you would for any mortgage.

Key Takeaways

• FHA loans require a minimum down payment of 3.5%, making homeownership possible with less savings upfront.
• You will pay mortgage insurance on top of your regular mortgage payment, which increases your monthly cost.
• Your credit score, debt-to-income ratio, and employment history all factor into whether a lender will approve you for an FHA loan.
• The down payment money must come from your own savings, a gift from a family member, or a grant — not from a loan.
• FHA loans have limits on how much you can borrow, and those limits vary by county.

How the 3.5% down payment works in practice

When you put down 3.5%, you are responsible for the rest through the mortgage itself. On a $200,000 home, you put down $7,000 and borrow $193,000. The lender then requires you to pay an upfront mortgage insurance premium — a one-time fee of 1.75% of the loan amount, which can be rolled into your mortgage or paid at closing. That adds roughly $3,378 to your loan balance on this example.

Beyond that upfront cost, you pay annual mortgage insurance each month as part of your mortgage payment. The amount depends on your loan-to-value ratio (how much you borrowed compared to the home's value) and your credit score. Someone with a 580 credit score pays more than someone with a 680 score on the same loan. This monthly insurance typically ranges from $150 to $300 on a $200,000 loan, though it varies widely.

The total cost of borrowing more and insuring the loan is real — your monthly payment will be higher than a conventional loan with a larger down payment. But the trade-off is that you can buy sooner if you do not have 10% or 20% saved.

What you need to may have access to for an FHA loan

Lenders look at three main things: your credit score, your debt-to-income ratio, and your employment history. Most lenders require a minimum credit score of 580 to may have access to for the 3.5% down payment option. If your score is between 500 and 579, some lenders will work with you, but you may need to put down 10% instead.

Your debt-to-income ratio is the percentage of your gross monthly income that goes to debt payments. This includes car loans, student loans, credit cards, child support, and the new mortgage payment. Most lenders want this ratio to be 43% or lower, though some will go to 50% if you have strong compensating factors like a large savings account or a stable job history.

You also need to show steady employment — usually at least two years in your current field, though not necessarily at the same employer. If you changed jobs recently, lenders want to see that you moved within the same industry or that the new job pays similarly. Self-employed borrowers need to provide two years of tax returns and sometimes a profit-and-loss statement.

Where the down payment money can come from

Your down payment must come from a legitimate source. Your own savings is the simplest route — the lender will ask to see bank statements showing the money has been there for at least two months. A gift from a family member (spouse, parent, sibling, or relative) is also allowed, but the lender requires a signed gift letter stating the money is a gift, not a loan you have to repay.

Some down payment assistance programs offer grants or forgivable loans that can count toward your down payment. These are run by nonprofits, local housing authorities, or state programs, and they vary by location. A grant does not need to be repaid; a forgivable loan is repaid only if you sell the home or refinance within a set period (often 5 to 10 years). Your lender can tell you which programs they work with, or you can search your state housing finance agency's website.

One source that does not work: borrowing the down payment from another lender, using a credit card cash advance, or taking a personal loan. Lenders consider this "borrowed funds" and it disqualifies you because it increases your debt-to-income ratio and suggests you cannot actually afford the home.

FHA loan limits and where you can buy

The FHA sets a maximum loan amount for each county, and it changes every year. These limits are higher in expensive areas and lower in rural counties. In 2024, the baseline limit for most of the country is $472,030 for a single-family home, but it can be as high as $1,089,300 in high-cost areas like San Francisco or New York City. You can find your county's limit on the HUD website under "FHA Mortgage Limits."

The limit applies to the loan amount, not the purchase price. If you are buying a $500,000 home in a county with a $472,030 limit, you would need to put down at least $27,970 to stay within the limit — more than the 3.5% minimum. This effectively raises your down payment requirement in expensive markets.

FHA loans can be used to buy a single-family home, a townhouse, or a condo in an FHA-approved building. Not all condos are approved; the building must meet FHA standards for owner occupancy, financial health, and insurance. Your lender checks this before you apply.

Mortgage insurance: the ongoing cost

Mortgage insurance protects the lender, not you. If you stop paying, the insurance covers part of the lender's loss. But you pay for it every month, and it does not build equity or go toward your home's value.

On an FHA loan with less than 10% down, the mortgage insurance stays for the life of the loan — you cannot remove it by paying down the principal or refinancing into a conventional loan (though refinancing may still make sense if rates drop). If you put down 10% or more, the insurance drops off after 11 years of on-time payments.

The monthly insurance cost is calculated as a percentage of your loan balance. A borrower with a 3.5% down payment and a 640 credit score might pay around 0.80% annually on the loan amount — roughly $154 per month on a $193,000 loan. Someone with a 580 credit score on the same loan might pay 1.3% annually, or about $251 per month. These are estimates; your actual cost depends on the lender and the exact loan terms.

When an FHA loan makes sense versus other options

An FHA loan is useful if you have limited savings but a stable income and decent credit. The 3.5% down payment requirement is lower than most conventional loans, and the credit score requirement (580 minimum) is more forgiving than many lenders offer. If you have been working to rebuild credit after a past problem, an FHA loan may be your fastest path to homeownership.

Conventional loans with 3% down exist and sometimes have lower mortgage insurance costs than FHA, but they typically require a credit score of 620 or higher and stricter debt-to-income limits. VA loans (for military members and veterans) and USDA loans (for rural properties) offer zero down payment, but they have their own may be able to access rules and geographic restrictions.

The real question is whether the monthly mortgage insurance cost is worth it to you. If you can save another 6.5% for a 10% down payment, you might avoid FHA insurance altogether and use a conventional loan instead. If you need to buy now and cannot wait to save more, the FHA route lets you move forward — just budget for that insurance payment as part of your monthly housing cost.

Frequently Asked Questions

Can I use an FHA loan to buy a second home or investment property?

No. FHA loans are only for primary residences — the home where you will live most of the time. You cannot use an FHA loan to buy a vacation home, rental property, or investment property.

What happens if my credit score is below 580?

Some lenders will work with scores as low as 500, but you will likely need to put down 10% instead of 3.5%. Other lenders may decline you entirely. Your best option is to check with multiple lenders and ask about their minimum credit score requirements.

Can I remove the mortgage insurance later by refinancing?

Refinancing into a conventional loan can remove FHA mortgage insurance, but you will need a higher credit score and enough home equity to may have access to. Refinancing also means closing costs and a new application process. It makes sense only if rates have dropped significantly or your financial situation has improved enough to may have access to for a conventional loan.

Do I have to use an FHA-approved lender?

Yes. Only lenders approved by the FHA can issue FHA loans. Most major banks and mortgage companies are approved. You can ask any lender whether they offer FHA loans, or search the HUA Lender Directory online.

What if the home inspection finds problems?

FHA loans require the home to meet minimum property standards — no major structural damage, working plumbing and electrical, and no lead paint hazards (for homes built before 1978). If the inspection finds problems, the seller must fix them or you can walk away. This is separate from your personal home inspection, which is your own protection.