FHA loans require a down payment as low as 3.5 percent of the home's purchase price, and the Federal Housing Administration insures the loan so lenders accept borrowers with lower credit scores and less cash on hand.

The 3.5 percent figure is the minimum. If you buy a $200,000 home, your down payment would be $7,000. The remaining $193,000 becomes the loan amount, which you repay over 15 or 30 years. Because the FHA guarantees the loan — meaning it covers the lender's loss if you stop paying — lenders can afford to take on borrowers they would otherwise reject.

That may provide comes with a cost: mortgage insurance premiums. You pay an upfront insurance premium (called UFMIP) at closing, usually rolled into your loan balance, and then an annual premium divided into your monthly mortgage payment. The total cost of insurance varies by your down payment size and loan term, but it typically adds $100 to $300 per month to your payment.

Key Takeaways

  • FHA down payments start at 3.5 percent of the purchase price, meaning you need $3,500 saved for every $100,000 of home value.
  • The down payment can come from your own savings, a gift from a family member, or a grant from a nonprofit or government program — but not from a loan.
  • Mortgage insurance is mandatory with FHA loans and costs between $100 and $300 monthly depending on your down payment and loan length.
  • Your credit score, debt-to-income ratio, and employment history matter more than a large down payment because the FHA insures the lender's risk.
  • Closing costs (typically 2 to 5 percent of the purchase price) are separate from the down payment and must be paid at signing.

Where the 3.5 percent minimum comes from

The FHA set 3.5 percent as the floor because it represents the point where the insurance fund breaks even over time. Borrowers with larger down payments default less often, so the FHA can afford to insure smaller ones. If you put down less than 3.5 percent, the loan is not an FHA loan — it falls into a different category that most lenders do not offer.

The down payment is calculated on the purchase price, not the appraised value. If you negotiate a $200,000 purchase price but the home appraises at $210,000, your down payment is still based on $200,000. This matters because it means the appraisal does not change your cash requirement, though it can affect your loan-to-value ratio and insurance costs.

What money counts toward your down payment

Your own savings count fully. A gift from a family member counts fully, but the lender will ask for a signed letter stating it is a gift, not a loan you have to repay. Some lenders require the gift-giver to have a bank statement showing they have the funds, and the money must sit in your account for at least two months before closing (called "seasoning").

Grants from nonprofits, state housing programs, or local government agencies count fully and do not have to be repaid. The lender will verify the grant with the issuing organization. A loan from anyone — family, employer, or a personal lender — does not count toward your down payment. It counts as debt, which raises your debt-to-income ratio and can disqualify you or reduce the loan amount you are approved for.

Sweat equity (the value of work you do on the property yourself) does not count. Neither does a promise to pay later. The money must be in your bank account or the lender's escrow account before closing.

How mortgage insurance changes your total cost

The upfront mortgage insurance premium (UFMIP) is typically 1.75 percent of your loan amount and is usually added to what you borrow rather than paid in cash at closing. On a $193,000 loan, that is roughly $3,378, which means you are borrowing an extra $3,378 and paying interest on it for 15 or 30 years.

The annual mortgage insurance premium (MIP) ranges from 0.55 percent to 0.80 percent of your loan balance per year, depending on your down payment and loan term. With a 3.5 percent down payment on a 30-year loan, you typically pay around 0.80 percent annually. That $193,000 loan would cost about $1,544 per year, or roughly $129 per month. With a 10 percent down payment, the annual rate drops to around 0.55 percent, lowering your monthly cost.

The insurance premium stays in place for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more, the insurance drops off after 11 years of on-time payments. This is one reason some borrowers save longer to reach 10 percent — the long-term savings can outweigh the cost of waiting.

Separating down payment from closing costs

Your down payment and closing costs are two different things. Closing costs cover the lender's appraisal, title search, title insurance, attorney fees, recording fees, and other services needed to finalize the loan. They typically run 2 to 5 percent of the purchase price — on a $200,000 home, that is $4,000 to $10,000.

The FHA allows the seller to pay up to 6 percent of the purchase price toward your closing costs. This is called a seller concession. If the seller agrees, they cover part or all of your closing costs, which means you do not have to bring that cash to closing. However, if the seller pays more than your actual closing costs, the excess cannot go toward your down payment — it must reduce the purchase price or be returned to the seller.

Some lenders and loan programs offer closing cost information or allow you to roll closing costs into your loan, but this increases what you borrow and the interest you pay over time. Ask your lender what options are available in your state.

Credit score and debt-to-income requirements

The FHA does not publish a minimum credit score, but most lenders require 580 or higher to get the 3.5 percent down payment option. If your score is between 500 and 579, some lenders will work with you but may require a 10 percent down payment instead. Below 500, FHA loans are generally not available.

Your debt-to-income ratio (DTI) is the total of all your monthly debt payments divided by your gross monthly income. The FHA allows up to 50 percent DTI in most cases, meaning if you earn $4,000 per month, your total monthly debts (including the new mortgage payment) can be up to $2,000. Some lenders go lower, to 43 or 45 percent. A lower DTI makes approval easier and can lower your interest rate.

Employment history matters. Lenders want to see at least two years of steady work history. If you changed jobs recently, you may need a letter from your new employer confirming your position and salary. Self-employed borrowers typically need two years of tax returns and a profit-and-loss statement.

How much to save before you start the process

Calculate your down payment by multiplying the expected purchase price by 0.035. For a $250,000 home, that is $8,750. Add your estimated closing costs (ask a lender for a Loan Estimate, which breaks these down) — typically $5,000 to $12,500 for that same home. You should have at least $13,750 to $21,250 saved before you begin the mortgage process.

Some borrowers also save a small reserve — typically one to three months of the projected mortgage payment — to show lenders they can handle the loan if income drops. This is not required, but it strengthens your process and can lower your interest rate slightly.

If you do not have the full amount saved, explore whether you live in an area with down payment information programs. Many states, counties, and nonprofits offer grants or forgivable loans specifically for down payments and closing costs. Your lender or a local housing counselor can point you toward programs in your area.

Frequently Asked Questions

Can I borrow the down payment from someone?

No. A loan from anyone — even family — counts as debt and raises your debt-to-income ratio, which can disqualify you or reduce your loan amount. A gift with a signed letter stating it does not have to be repaid is allowed. Grants from government or nonprofit programs are also allowed.

What happens if the home appraises for less than the purchase price?

Your down payment is still based on the purchase price you negotiated, not the appraisal. However, if the appraisal is significantly lower, the lender may require you to increase your down payment to maintain the loan-to-value ratio, or you can renegotiate the purchase price with the seller.

Can I put down more than 3.5 percent to avoid mortgage insurance?

Mortgage insurance is mandatory on all FHA loans with less than 10 percent down. If you put down 10 percent or more, the insurance drops after 11 years of on-time payments. Putting down more than 3.5 percent lowers your monthly insurance cost but does not eliminate it unless you reach 10 percent.

Do I have to pay the upfront mortgage insurance at closing?

No. The upfront insurance premium (UFMIP) is typically rolled into your loan balance, so you do not pay it in cash at closing. You repay it over the life of the loan with interest. Some lenders allow you to pay it upfront in cash if you prefer.

What if I do not have enough for closing costs?

Ask the seller to cover closing costs through a seller concession — the FHA allows up to 6 percent of the purchase price. Some lenders also offer programs that roll closing costs into the loan. Both options increase what you borrow and the interest you pay, so compare the long-term cost before deciding.