FHA loans require a down payment, but the minimum is lower than conventional mortgages
Yes, FHA loans require a down payment. You cannot borrow 100% of the home's purchase price. The minimum down payment for an FHA loan is 3.5% of the purchase price if your credit score is 580 or higher. If your credit score falls between 500 and 579, the minimum down payment rises to 10%.
The 3.5% minimum is the main reason FHA loans exist as a product—they let borrowers with lower credit scores and smaller savings enter the housing market sooner than a conventional loan would allow. But the lower down payment comes with a tradeoff: you pay mortgage insurance premiums on top of your monthly payment for the life of the loan (or until you refinance into a conventional mortgage).
The down payment itself comes from your own funds. You cannot borrow it from another source, though some FHA programs allow gifts from family members to count toward the down payment.
Key Takeaways
- FHA loans require a minimum 3.5% down payment if your credit score is 580 or above, or 10% if your score is between 500 and 579.
- The down payment must come from your own savings or from a gift from a family member; you cannot borrow it from another lender.
- You will pay mortgage insurance premiums (called UFMIP and MIP) on top of your monthly payment, which increases your total cost over time.
- The lower down payment requirement makes FHA loans accessible to first-time buyers and people with limited savings, but the insurance costs offset some of that advantage.
How the 3.5% down payment works in practice
If you are buying a home for $200,000 with an FHA loan and a 3.5% down payment, you pay $7,000 out of pocket. The lender finances the remaining $193,000. That $7,000 is money you must have in your bank account before closing; the lender will verify it through bank statements.
The down payment reduces the amount you borrow, which lowers your monthly principal and interest payment. But because you are putting down less than 20%, you also trigger mortgage insurance requirements. The lender will charge you an upfront mortgage insurance premium (UFMIP) at closing, usually 1.75% of the loan amount, and then a monthly mortgage insurance premium (MIP) that gets added to your payment each month.
On that same $200,000 home, the UFMIP would be roughly $3,378 (1.75% of $193,000). This amount is often rolled into your loan, meaning you borrow it rather than paying it in cash at closing. The monthly MIP varies based on your loan amount, down payment percentage, and loan term, but typically ranges from 0.55% to 0.80% of your loan balance per year.
Down payment sources and what the lender will accept
Your down payment must come from liquid funds—money in a savings account, checking account, or money market account. The lender will ask for bank statements covering the last two months to verify you have the funds and that they are truly yours.
If the money came from a recent deposit, the lender may ask where it came from. Large deposits that appear suddenly can trigger questions about whether the money is a loan (which would increase your debt-to-income ratio) or a gift. If it is a gift, the person giving it must sign a gift letter stating they do not expect repayment.
Some FHA programs allow up to 100% of your down payment to come from a gift, as long as the gift is from a family member—spouse, parent, sibling, grandparent, or in-law. Other lenders are stricter and require you to contribute at least 1% of your own funds. Ask your lender about their specific gift policy before you rely on a family member's money.
You cannot use a credit card cash advance, a personal loan, or a home equity line of credit to fund your down payment. The lender considers these borrowed funds and will count them against your debt-to-income ratio, which may disqualify you.
Credit score thresholds and down payment requirements
Your credit score determines your minimum down payment percentage. Most FHA lenders require a 580 credit score or higher to may have access to for the 3.5% minimum. If your score is between 500 and 579, you must put down at least 10%. Some lenders set their own minimums higher than the FHA's baseline—a lender might require a 620 score or a 5% down payment—so shop around if your score is close to the threshold.
The credit score requirement reflects the lender's assessment of risk. A lower score means you have a history of missed payments or high debt, so the lender asks for more of your own money in the deal to reduce their exposure. The down payment acts as a cushion: if you default and the home sells for less than you owe, the lender loses less money if you had more skin in the game.
What happens if you do not have 3.5% saved
If you cannot save 3.5% of the purchase price, an FHA loan is not available to you at that moment. You have a few options: continue saving, explore a conventional loan with a lower credit score requirement (though these typically require 5% to 10% down and higher interest rates), or look into down payment assistance programs offered by your state or local housing authority.
Some states and cities offer grants or forgivable loans specifically for down payments and closing costs. These programs vary widely by location and often have income limits or first-time homebuyer requirements. Contact your local housing authority or search your state's housing finance agency website to learn what programs exist in your area.
Another option is to increase your income or reduce your debt so that your debt-to-income ratio improves. This can make you may be able to access for a larger loan amount, which might let you afford a less expensive home and save the down payment faster.
Mortgage insurance and the true cost of a low down payment
The mortgage insurance premium is the price you pay for putting down less than 20%. On an FHA loan, you cannot remove this insurance even after you build equity in the home—it stays for the life of the loan unless you refinance into a conventional mortgage.
This is different from a conventional loan, where you can request to drop private mortgage insurance (PMI) once you reach 20% equity. An FHA borrower with 15% equity still pays MIP. An FHA borrower with 50% equity still pays MIP. The only way out is to refinance, which means applying for a new loan, paying closing costs again, and may have access to based on your current credit and income.
Over a 30-year loan, the mortgage insurance adds tens of thousands of dollars to your total cost. On a $193,000 FHA loan, the monthly MIP might be $90 to $130 per month. Over 30 years, that is $32,400 to $46,800 in insurance alone, on top of principal and interest. This is why some borrowers who can save a larger down payment choose to do so—the upfront sacrifice reduces the long-term cost.
Frequently Asked Questions
Can I use a gift for my entire down payment?
Most FHA lenders allow gifts from family members to cover your full down payment, but you must provide a signed gift letter from the person giving the money stating they do not expect repayment. Some lenders require you to contribute at least 1% of your own funds. Confirm your lender's policy before accepting a gift.
What if my credit score is below 500?
FHA loans are not available to borrowers with credit scores below 500. You would need to work with a credit counselor to improve your score, explore conventional loans from lenders that accept lower scores, or look into state or local first-time homebuyer programs that may have different requirements.
Do I have to pay the upfront mortgage insurance at closing?
The upfront mortgage insurance premium (UFMIP) can be paid in cash at closing or rolled into your loan amount. Most borrowers roll it in because they do not have extra cash on hand after the down payment. Rolling it in increases your monthly payment slightly but does not change your total cost.
Can I remove mortgage insurance after I pay off part of my loan?
No. FHA mortgage insurance stays for the life of the loan. The only way to remove it is to refinance into a conventional mortgage, which requires a new application, closing costs, and qualification based on your current credit and income.
What if I can only save 2% for a down payment?
An FHA loan requires at least 3.5% down, so you would not may have access to with a 2% down payment. You could continue saving, explore down payment assistance programs in your state or city, or wait until your credit score or income improves so you can may have access to for a larger loan amount on a less expensive home.