FHA loans, insured by the Federal Housing Administration (FHA), offer flexible eligibility criteria and a low down payment requirement. If you’re exploring an FHA loan, here’s an overview of the down payment requirement and associated costs to consider.
What is the minimum FHA loan down payment?
The FHA loan down payment requirement varies, typically ranging from 3.5 percent to 10 percent of the home’s purchase price, based on your credit score:
| Credit score | FHA down payment requirement |
|---|---|
| 580+ | 3.5% |
| 500-579 | 10% |
How to save for an FHA loan down payment
To prepare for an FHA loan down payment, start by setting clear goals. Consider these key factors:
- Determine your homebuying budget and how much you can afford.
- Set a timeline for purchasing a home.
- Develop a savings strategy specifically for your down payment.
- Assess your current savings and see if you can allocate any existing funds.
- Explore the possibility of receiving contributions from family or friends towards your down payment.
While you can increase your savings by reducing expenses or using money-saving apps, remember you don’t have to cover the entire 3.5 percent (or 10 percent) on your own. FHA loans allow gifted funds to be used for the down payment. Here’s how it works:
FHA loan down payment gifts and rules
Down payment gifts typically originate from friends and family members, and may also come from labor unions, employers, or nonprofit organizations. However, there are restrictions on using gifted funds from certain sources:
- The home builder
- The home’s seller
- Your real estate agent or broker
- Any party with a financial stake in the home’s sale
Using gifted funds for an FHA loan can assist individuals in becoming homeowners who might not otherwise afford a home. If you choose to use gifted funds, your mortgage lender may request a gift letter as part of the documentation process.
FHA loan down payment assistance
In addition to gifted funds, you can also utilize down payment assistance for your FHA loan. Numerous assistance programs are available, including those offered by nonprofits, lenders, and government entities. For example, state housing finance agencies (HFAs) often bundle assistance with loans for first-time homebuyers.
Qualifying for an FHA loan
While specific criteria can vary among lenders, there are several essential requirements you must meet to qualify for an FHA loan, including:
- The property must be your primary residence.
- You need a minimum credit score of at least 580 (500 if making a 10 percent down payment).
- You must make a minimum down payment of 3.5 percent (assuming a credit score of at least 580).
- Your back-end debt-to-income ratio should not exceed 43 percent (though it can go up to 50 percent in certain cases).
- You are required to pay an upfront Mortgage Insurance Premium (MIP) of 1.75 percent of the loan principal.
Additional cost considerations for FHA loans
In addition to the down payment, it’s essential to budget for the following costs associated with an FHA loan:
- FHA Mortgage Insurance Premiums (MIPs): There are upfront and monthly MIPs. The upfront fee is paid at closing and can be financed into the mortgage. Monthly premiums are included in your mortgage payment, the amount and duration of which vary based on your down payment and other factors.
- FHA Loan Closing Costs: These generally range from 2 percent to 6 percent of the home’s purchase price.
Other low-down payment mortgages
Other mortgage options with low or no down payment requirements include:
- Conventional loans with a 3 percent down payment option
- VA loans that require no money down for eligible military members and veterans
- USDA loans that also require no money down for borrowers in qualifying rural areas