FHA Loan Down Payment Requirements
FHA loans offer a great opportunity for first-time homebuyers and those with less-than-perfect credit to purchase a home with a minimal down payment.
With just 3.5% down, FHA loans are more accessible than many other loan types, making them one of the most popular options for new homeowners.
This article will dive into the details of FHA loan down payment requirements and how factors like credit score, mortgage insurance, and down payment assistance can impact your home purchase.
Calculate the Down Payment Needed with an FHA Loan
FHA Loan Down Payment Calculator
Your Credit Score Affects How Much You Need Down
Your credit score plays a key role in determining your FHA loan down payment. FHA borrowers with a 580 credit score or higher are eligible for the standard 3.5% down payment. However, if your credit score falls between 500-579, you’ll need to make a 10% down payment.
It’s important to check your credit score before applying for an FHA loan. If you’re below 580, consider working on improving your score to qualify for the 3.5% down payment option.
Down Payment Requirements Based on Credit Score
| Credit Score Range | Down Payment Requirement |
|---|---|
| 580 and above | 3.5% |
| 500-579 | 10% |
| Below 500 | Not eligible for FHA loan |
What is an FHA Loan?
The Federal Housing Administration (FHA) was established in 1934 to increase homeownership opportunities. FHA loans are insured by the government, which helps reduce the risk for lenders, allowing them to offer loans to borrowers with lower down payments and less stringent credit requirements.
Unlike conventional loans that often require 20% down, FHA loans allow qualified borrowers to put down as little as 3.5%, making homeownership much more attainable for a wider range of people.
What is a Down Payment?
When you get a mortgage, the down payment is the percentage of the home’s purchase price that the borrower must contribute upfront. For FHA loans, this amount is typically 3.5% for those with a credit score of 580 or above. For example, on a $200,000 home, the down payment would be $7,000, and the remaining $193,000 would be financed through the loan.
FHA Loan Down Payment Examples
| Home Price | 3.5% Down Payment | 10% Down Payment |
|---|---|---|
| $150,000 | $5,250 | $15,000 |
| $200,000 | $7,000 | $20,000 |
| $250,000 | $8,750 | $25,000 |
| $300,000 | $10,500 | $30,000 |
Down Payment Needed by Mortgage Loan Type
While FHA loans offer low down payment options, they aren’t the only ones available. Some government-backed loans offer no down payment, making them appealing for certain buyers.
- FHA Loan: 3.5% down with a 580+ credit score.
- VA Loan: 0% down for eligible Veterans and active-duty military.
- USDA Loan: 0% down for homes in eligible rural areas.
- Conventional Loan: 3%-20% down, depending on loan type and borrower qualifications.
How the FHA Loan Down Payment Affects Mortgage Insurance
One of the trade-offs for having a lower down payment is that FHA loans require Mortgage Insurance Premiums (MIP). This insurance protects the lender in case the borrower defaults on the loan. The MIP rate varies based on your down payment:
- 3.5% down: MIP is 0.85% of the loan amount annually.
- 5%-10% down: MIP drops to 0.80%.
- 10% down: MIP is 0.80% and is only required for the first 11 years of the loan.
FHA Down Payment Assistance Programs
FHA loans allow borrowers to use down payment assistance programs to cover part or all of their down payment. These programs are typically offered through local or state government agencies and non-profit organizations.
| Program Name | Assistance Type | Amount Provided | Forgivable? | Link to Program |
|---|---|---|---|---|
| National Homebuyers Fund (NHF) | Grant/Loan | Up to 5% | Yes, if conditions met | Visit NHF |
| Chenoa Fund | Second Mortgage | Up to 3.5% | Yes, for low-income borrowers | Visit Chenoa Fund |
| State & Local Programs | Grant/Loan | Varies by state | Sometimes | Visit HUD’s Website |
| FHA Section 203(k) | Rehabilitation Loan | 3.5% + Renovation Costs | No | Visit 203(k) Page |
| Good Neighbor Next Door | Discount Program | Up to 50% | N/A | Visit GNND Program |
For more information on available programs, visit HUD’s Down Payment Assistance page.
First-Time Homebuyers
FHA loans are especially popular among first-time homebuyers due to their lower credit score and down payment requirements. Additionally, FHA loans offer more flexibility with higher debt-to-income (DTI) ratios than conventional loans, allowing more people to qualify.
Some benefits for first-time buyers include:
- 3.5% down for buyers with a 580+ credit score.
- Higher DTI ratios, allowing more flexibility.
- Fixed and adjustable-rate mortgages available.
Using Gift Funds for Down Payment
One of the advantages of FHA loans is that you can use gift funds to cover 100% of your down payment. These funds can come from a family member, friend, or another approved source. You will need a gift letter from the person providing the funds, and both the lender and borrower must prove the source of the gift.
The Lender Will Trace the Down Payment
The down payment funds must be traceable to an approved source. You can’t simply use cash for your down payment. The funds must come from an account that can be documented, such as a checking or savings account, retirement funds, or an investment account.
Make sure any funds gifted for your down payment are deposited and traceable for at least three months before closing. Cash payments are not acceptable, and failure to provide proof of funds could prevent you from closing on your home.
FHA Down Payment Assistance Programs
FHA loans offer great flexibility, including allowing borrowers to use down payment assistance programs to cover part or all of their down payment. These programs are particularly beneficial for first-time homebuyers or individuals with low-to-moderate income who may struggle to save for a down payment. Assistance can come in various forms, such as grants, forgivable loans, and second mortgages.
Here are some of the most popular down payment assistance programs available to FHA borrowers:
1. National Homebuyers Fund (NHF)
The National Homebuyers Fund is a nationwide program that offers down payment assistance in the form of grants or loans that may be forgivable. The program covers up to 5% of the loan amount, which can be used toward your down payment or closing costs. The NHF is available to both first-time and repeat homebuyers.
- Provides up to 5% of the loan amount
- Available for FHA loans, among others
- No repayment required if certain conditions are met (forgivable loans)
- Visit NHF Website
2. State and Local Government Programs
Most states offer down payment assistance programs through state housing finance agencies. These programs vary by state but often provide financial aid to first-time homebuyers in the form of grants or low-interest loans. Some local governments and nonprofits also offer similar programs.
- State-specific programs designed to assist first-time buyers
- Available for low- and moderate-income families
- Typically combined with FHA loans for more favorable terms
- Find State and Local Programs on HUD’s Website
3. Chenoa Fund
The Chenoa Fund offers down payment assistance in the form of a second mortgage, which can either be repayable or forgivable based on the borrower’s financial situation. The Chenoa Fund can provide up to 3.5% of the purchase price, allowing many borrowers to buy a home with no money down.
- Provides up to 3.5% down payment assistance
- Available for FHA loans
- Forgivable options for lower-income buyers
- Visit Chenoa Fund Website
4. FHA Section 203(k) Rehabilitation Loan
Although primarily designed for home improvements, the FHA Section 203(k) Loan program allows borrowers to finance both the purchase and the renovation of a home with a low down payment. It can be used in conjunction with down payment assistance programs to help cover initial costs.
- Combines home purchase and renovation into a single loan
- Requires just 3.5% down
- Available to low- and moderate-income homebuyers
- Visit FHA 203(k) Program Page
5. Good Neighbor Next Door (GNND) Program
The Good Neighbor Next Door program offers up to 50% off the home price for teachers, police officers, firefighters, and emergency medical technicians. This program also allows borrowers to use FHA loans and down payment assistance to cover closing costs.
- Up to 50% discount on home price
- Available for FHA loans
- Designed for specific public service professions
- Visit GNND Program Page
Benefits of FHA Down Payment Assistance Programs
- Can cover 100% of the required down payment.
- Helps first-time homebuyers and low-income borrowers.
- May offer forgivable loans, reducing long-term financial obligations.
- Works with FHA loans, making homeownership accessible to more people.
These down payment assistance programs are designed to make homeownership more accessible, and they are often combined with FHA loans to further reduce the financial burden. Be sure to explore all available options and speak with your lender about eligibility requirements.
For more details, visit HUD’s official page on assistance programs.
Other Expenses To Budget For
While FHA loans require a low down payment, there are other costs you’ll need to budget for:
- Closing Costs: These typically range from 2%-5% of the loan amount.
- Appraisal Fees: Between $300-$800.
- Mortgage Insurance: FHA loans require upfront and annual mortgage insurance premiums.
Make sure you’re financially prepared for these costs, as they can add up quickly.
Other Upfront Costs Associated with FHA Loans
In addition to the down payment, FHA loans come with several upfront costs that borrowers need to account for when purchasing a home. These expenses can add up quickly, so it’s essential to budget for them along with your down payment. Below are some of the key upfront costs you might encounter:
Upfront Mortgage Insurance Premium (UFMIP): FHA loans require an upfront mortgage insurance premium, which is typically 1.75% of the loan amount. This cost can either be paid at closing or rolled into the loan amount.
Appraisal Fees: An FHA-approved appraisal is required to determine the market value of the home. Appraisal fees usually range between $300 and $600.
Home Inspection Fees: While not required by FHA, it’s recommended to get a home inspection to identify any issues with the property. This can cost between $300 and $500.
Title Insurance: Protects both the lender and buyer from issues with the title. The cost is generally between $500 and $1,500.
Origination Fees: Charged by the lender for processing the loan, origination fees can range from 0.5% to 1% of the loan amount.
Credit Report Fees: Lenders may charge a small fee to pull your credit report, typically around $20-$50.
Property Taxes and Homeowners Insurance: Lenders may require borrowers to prepay a portion of their property taxes and homeowners insurance at closing.
Table of Other Upfront Costs for FHA Loans
| Cost Type | Estimated Amount |
|---|---|
| Upfront Mortgage Insurance Premium (UFMIP) | 1.75% of the loan amount |
| Appraisal Fee | $300 – $600 |
| Home Inspection Fee | $300 – $500 |
| Title Insurance | $500 – $1,500 |
| Loan Origination Fee | 0.5% – 1% of loan amount |
| Credit Report Fee | $20 – $50 |
| Prepaid Property Taxes | Varies by location |
| Homeowners Insurance (Prepaid) | $600 – $1,200 annually |
The Bottom Line
FHA loans make homeownership accessible to many people who might not otherwise qualify. With just a 3.5% down payment for borrowers with a 580+ credit score, FHA loans offer flexibility and affordability. Whether you’re a first-time homebuyer or looking for down payment assistance programs, FHA loans are a solid option.
Remember, the down payment must come from an approved source, and FHA loans also allow for gift funds and down payment assistance programs. Be sure to review your finances and ensure you have a clear plan for meeting the down payment and other costs associated with buying a home.
For more details on FHA loan requirements, visit the official HUD website.
FHA Down Payment FAQs
What is the minimum down payment for an FHA loan?
The minimum down payment for an FHA loan is 3.5% for borrowers with a credit score of 580 or higher.
Can I use gift funds for an FHA down payment?
Yes, FHA loans allow 100% of the down payment to be gifted from an approved source, such as family members.
Does a larger down payment lower FHA mortgage insurance?
Yes, a down payment of 10% or more will reduce the mortgage insurance premium and only require it for the first 11 years.
Are there any down payment assistance programs for FHA loans?
Yes, FHA loans allow down payment assistance programs to help cover the cost of the down payment.
What happens if my down payment can’t be traced?
If your down payment cannot be traced, the lender will not allow you to close on the home.
Can I combine FHA loans with other assistance programs?
Yes, many local governments offer down payment assistance programs that can be combined with FHA loans.
Can I refinance an FHA loan?
Yes, you can refinance an FHA loan through an FHA Streamline Refinance or a conventional refinance option.
How does my credit score affect my FHA down payment?
Borrowers with a 580+ credit score can qualify for 3.5% down, while those with scores between 500-579 need 10% down.