FHA loan down payment requirements and guidelines
Quick insights
- FHA mortgages may allow you to pay as little as 3.5% if your credit score is 580 or higher.
- If your credit score is between 500 and 579, you’ll need to pay at least 10% down.
- FHA mortgage loans require mortgage insurance premiums (MIP) and may have other related costs.
A low down payment requirement and lower minimum credit score make FHA loans an attractive option for first-time homebuyers and borrowers with past credit issues. That’s because the Federal Housing Administration (FHA) guarantees a portion of FHA home loans, which allows lenders to expand their acceptance standards. This means borrowers can qualify for mortgage loans with down payments as low as 3.5%.
Understanding the FHA’s down payment requirements and qualification criteria is key to deciding if the FHA loan program is right for you.
FHA loans explained
Federal Housing Administration loans are mortgage loans backed and insured by the government. They’re available through FHA-approved mortgage lenders and typically offer fixed-rate terms of 15–30 years. Many first-time homebuyers like FHA loans because they require lower down payments and minimum credit scores than many conventional loans.
How to qualify for an FHA loan
To qualify for an FHA loan, borrowers must apply through an FHA-approved lender and meet certain credit, income and documentation requirements. Loan providers will typically review your debt-to-income (DTI) ratio, employment history and overall ability to repay the loan before making a decision. You can learn more about the approval process in our guide on how to qualify for an FHA loan.
FHA loan requirements
While specific requirements can vary by mortgage lender, FHA loans generally have guidelines that may include:
- Minimum credit score that meets FHA standards, which can influence your down payment options and overall eligibility.
- Low down payment requirements, sometimes as low as 3.5% for qualifying borrowers, help make homeownership more accessible.
- Steady employment and income history to demonstrate your ability to repay the loan over time.
- A qualifying DTI ratio, which loan providers use to measure how much of your monthly income goes toward debt payments.
- Mortgage insurance premiums (MIP), including both upfront and annual costs, which help protect the loan provider and are required for FHA loans.
- Primary residence occupancy, meaning the home must be your main residence rather than a second home or investment property.
- A home that meets FHA appraisal and property standards, ensuring the property is safe, livable and structurally sound before closing.
How much is an FHA mortgage down payment?
One benefit of an FHA loan over a conventional loan is that conventional loans typically require a higher down payment. It can be difficult for first-time homebuyers to save up for a larger down payment, particularly for those with student loans and credit card debt.
It’s also important to note that the down payment for an FHA loan depends on your credit score:
- If your credit score is 580 or higher, you’ll need to make a minimum down payment of 3.5%.
- If your credit score is between 500 and 579, you’ll need to make a minimum down payment of 10%.
Additional closing costs of an FHA loan?
Because lenders assume more risk by accepting lower down payments, they also require buyers to pay mortgage insurance premiums (MIPs) as part of their monthly mortgage payment. These are separate from other closing costs charged by your lender. FHA loans typically require homeowners to pay two mortgage insurance premiums: an upfront premium and an annual premium. The annual FHA mortgage insurance premium is usually due for the term of the loan for higher LTV (3.5% down payment). However, if LTV is 90% or less, the annual MIP may be for 11 years vs. the life of loan.
The two types of premiums are:
- Upfront MIP: The borrower is responsible for paying an upfront MIP, which can be financed into the mortgage but will increase the total monthly payment. Typically, the upfront MIP is 1.75% of the total loan amount.
- Annual MIP: The annual MIP is an ongoing, yearly insurance premium, which can be added to your monthly mortgage payment. The cost of the annual premium depends on your mortgage term, loan balance and your loan-to-value (LTV) ratio.
Are FHA loans eligible for down payment assistance?
If you apply for an FHA loan, you can use down payment assistance and gifts. However, your gift funds must be from family or another eligible donor.
The FHA allows you to use assistance from your employer, a labor union or charitable organizations as part of your down payment. You can also use funds from government agencies or public entities that aid low-to-moderate income or first-time buyers. These may include down payment assistance programs like grants, forgivable loans, and low- or zero-interest loans.
Certain individuals are prohibited from contributing to FHA loan down payments. These include home builders, real estate agents, real estate brokers, sellers or anyone with a vested interest in selling the house. An exception is a family member selling their home who may provide you with a gift of equity.
In summary
While FHA loans have drawbacks, such as mortgage insurance premiums, they’re still an attractive loan option for many homebuyers. When shopping around for loans, it’s important to compare mortgage rates and fees from lenders. You can also apply for an FHA loan and learn about available loan options to pursue a deal that meets your needs and goals.
Down payment for FHA loans: FAQs
Are FHA loans only for first-time homebuyers?
FHA loans are attractive for many homebuyers, not just first-time borrowers, because they have more flexible requirements than conventional mortgage loans.
For homebuyers with lower credit scores or who plan to make a low down payment, FHA loans are especially attractive. But anyone, even homeowners looking to refinance their mortgage, can apply for an FHA loan if they meet the eligibility requirements.
Do FHA loans always require 3.5% down?
A 3.5% down payment is the minimum down payment amount allowed. But there’s no restriction on making a larger down payment if your budget allows. However, if your credit score is below 580, you’ll probably need to put at least 10% down.
Can I use personal loans for FHA down payment?
No, you generally cannot use funds from an unsecured personal loan to cover the down payment on an FHA loan. The rules require that the down payment comes from your own funds, an acceptable source or an approved down-payment assistance program. Using borrowed money would raise your debt-to-income ratio and not comply with the source-of-funds requirements for FHA financing.
