FHA Loan Down Payment Requirements

What Is the Minimum Down Payment for an FHA Loan?

The minimum down payment for an FHA loan depends on your credit score:

• 580 or higher: 3.5% down payment
• 500 to 579: 10% down payment

For example, if you're purchasing a $250,000 home, your minimum down payment would be:

• $8,750 with a credit score over 580
• $25,000 with a credit score between 500 and 579.

If your credit score is under 500 or you don't have a credit score, you can't qualify for an FHA loan. You need to have at least one credit account open and active within the past six months to have a credit score.

Learn more: How to Qualify for an FHA Loan

Can You Use Gifted Funds for an FHA Loan Down Payment?

FHA loans allow you to use gift funds to help with your down payment, as long as the gift comes from an approved source. These include:

• Family member
• Employer or labor union
• Close friend
• Charitable organization
• Government agency or public entity providing homeownership assistance

You can't use gifted funds from anyone who has a financial interest in the home sale, including:

• Real estate agents or brokers
• Homebuilders
• Lenders or mortgage brokers

If you use gifted funds, you'll need to provide a gift letter that includes the donor's information, their relationship to you, the amount of the gift and a statement that the funds don't need to be repaid. The lender may require proof of the transfer of funds, like a check, deposit slip or bank statement.

Learn more: What Can I Use for a Down Payment on a Home?

Do FHA Loans Offer Down Payment Assistance?

FHA loans don't offer down payment assistance directly. However, homebuyers can take advantage of other down payment assistance programs from state, local and nonprofit organizations. First-time homebuyers, especially, can find a number of down payment assistance programs.

• Grants: These don't need to be repaid and are often available on a first-come, first-served basis. Some programs require you to complete a homebuyer education course to qualify.
• Forgivable loans: These don't require repayment if you meet certain conditions. For instance, you may have to live in the home for a specific period of time.
• Savings programs: These programs match what you've already saved for your down payment and often don't require repayment.

Talk to your state housing authority and lender to find down payment assistance programs in your area.

Should You Get an FHA Loan?

FHA loans offer several benefits, including lower credit score requirements and government-backed security. However, there are some additional upfront costs to consider, especially for borrowers with lower credit scores.

• Down payment: 3.5% or 10% depending on your credit score
• Upfront mortgage insurance premium: 1.75% of the loan
• Monthly mortgage insurance: 0.15% to 0.75% of the loan for most borrowers
• Closing costs: Typically between 2% and 6% of the home price. Seller concessions (up to 6% of the sale price) can help cover closing costs.
• Loan limits: Vary by location. FHA loans may not cover higher-priced homes.

If you have good credit and savings, a conventional loan may offer better terms and allow you to avoid upfront mortgage insurance. However, if you put down less than 20% on a conventional loan, you'll have to pay private mortgage insurance (PMI).

How to Save for an FHA Loan Down Payment

An FHA loan requires as little as 3.5% of the home price as a down payment. Consider your ideal home purchase price to help set a down payment savings goal. This makes saving more manageable. Here are some ways to save up:

• Set a firm budget and stick to it. Reduce discretionary spending so you can save more.
• Consider your savings strategy. Set up automatic transfers from your checking account to a dedicated, high-yield savings account. Save extra money like refunds or bonuses.
• Improve your credit score. Raising your credit score to at least 580 can reduce your minimum required down payment. You can check your FICO^® Score^☉ for free with Experian to see where you stand.
• Increase your income. Consider extra hours at work, getting a part-time job or picking up a side hustle to earn extra money and increase your income.
• Determine if you will have any gift money. Identify family, close friends, employers or charitable organizations who may be able to help.

Learn more: How Much House Can I Afford?

Alternatives to an FHA Loan

If you don't qualify for an FHA loan or you can't afford the down payment, consider other types of loans with flexible down payment requirements.

• Conventional loans: These require as little as 3% down for borrowers with higher credit scores. If you make less than a 20% down payment, you'll pay private mortgage insurance as part of your loan payment.
• USDA loans: Available from the U.S. Department of Agriculture to homebuyers with low-to-moderate income in eligible rural or suburban areas, these loans require no down payment and lower mortgage insurance costs.
• VA loans: Available from the U.S. Department of Veterans Affairs, these loans are for eligible military service members, veterans and surviving spouses. Typically, these loans require no down payment and lower interest rates.

The Bottom Line

FHA loans are a great option for people with lower credit scores and first-time homebuyers, but it's important to consider the costs and explore alternatives before making a decision. Check your credit report and FICO^® Score, and if your score is below 580, take time to improve your credit to help you qualify for a lower down payment and better terms. Doing so can help with any type of mortgage you decide to use.