What are the FHA loan down payment requirements?

FHA loans are mortgages backed by the Federal Housing Administration that don’t require a large down payment. A down payment is a percentage of a home’s purchase price that you pay upfront when you close on the home. While FHA loans do require you to make a down payment, it can be as low as 3.5% of the purchase price. Let’s walk through the FHA down payment requirements, what affects the amount you’ll need, and additional costs to consider.

FHA loan down payment rules

Let’s take a look at some of the rules and requirements that come with FHA loans.

Credit score

Your credit score determines the minimum down payment you’ll need to make:

• If your score is 500 to 579, the minimum down payment is 10%.
• If your score is 580 or higher, the minimum down payment is 3.5% ^1,2

For example, for a $250,000 home, a 580 score requires $8,750 down, while a 500 to 579 score requires at least $25,000.

Gift funds

If you’re planning to use FHA gift funds for your down payment, you’ll need to know the rules. The FHA allows you to use gift money to cover your down payment and closing costs, provided it comes from approved sources, which include:

• Your family member
• Your employer or labor union
• Your close friend with a clearly defined and documented interest
• A charitable organization
• A governmental agency assisting low/moderate-income families or first-time home buyers

However, people who have a financial interest in the home purchase can’t contribute gift funds toward your down payment. These people include:

• The seller of the property
• Real estate agents
• The lender
• The home builder

Borrowers may also need to submit a gift letter to verify the source of the funds and confirm that the money doesn’t need to be repaid.          

Financing a down payment

You cannot finance your FHA down payment. It must be paid upfront at closing and is considered part of your required cash to close.

Cash to close includes your down payment, along with other costs like closing fees and prepaid expenses. This is the total amount you’ll need to bring to the closing table when it’s time to finalize your home purchase.

Additional FHA loan requirements

In addition to the down payment and credit score, here are some of the other requirements you’ll need to meet in order to qualify for an FHA loan.

• Debt-to-income ratio (DTI): This figure compares your monthly debt payments to your monthly income. Your DTI should not exceed 45% of your monthly gross income, but you may qualify for a higher DTI with a higher credit score.

• Primary residence: The home must be your primary residence, meaning you must live in it full-time. You can’t use an FHA loan to buy a vacation home or investment property.

• Mortgage insurance premium (MIP): FHA loans require mortgage insurance, which protects the lender in case of default. This includes both an upfront premium – usually 1.75% of the loan – and annual premiums paid monthly.

Requirements may vary by lender, so be sure to check the specific requirements tied to the loan application.

Additional costs to close on an FHA loan

Aside from your down payment, let’s take a look at some of the other upfront costs of an FHA loan.

Closing costs

In addition to your down payment, you’ll need to cover FHA loan closing costs, which range from 2% to 6% of the home’s purchase price. These costs can include loan origination fees, appraisal fees, title insurance, and prepaid expenses like homeowners insurance and property taxes.

For a $250,000 home, that means you could expect to pay between $7,500 and $15,000 in closing costs, depending on the lender.

But there’s good news. Sellers can contribute up to 6% of the home’s sale price toward your closing costs. This can help reduce your up-front costs or even allow you to put down a larger amount toward your down payment.

An upfront mortgage insurance premium

FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount. This is a one-time fee that helps protect the lender and is required regardless of your down payment amount.

For a $250,000 home, the UFMIP would be $4,375. You can either pay this amount at closing or choose to roll it into your loan balance. Keep in mind that this will increase the total amount you borrow but reduce your out-of-pocket costs upfront.

An annual mortgage insurance premium

Your annual MIP amount varies based on the terms of your FHA loan, loan-to-value ratio (LTV), and down payment. While it’s called an annual amount, it’s actually divided into monthly installments and added to your regular mortgage payment. This means your MIP is part of your monthly housing costs and helps insure that loan in case of default.

Is down payment assistance available for FHA loans?

Yes, many first-time buyers can qualify for FHA down payment assistance through local or state programs. These programs are designed to help cover part or all of your down payment through grants, low-interest loans, or matched savings plans. Availability and eligibility can vary depending on location, income, and whether you meet the criteria for first-time buyers.

To make the search easier, the U.S. Department of Housing and Urban Development (HUD) offers an online resource that lists local home buying programs by state. You can use this tool to find programs in your area that may help with down payment or closing cost assistance.

Other low down payment mortgage options

FHA loans aren’t the only way to buy a home with a smaller upfront investment. There are also other programs that offer low, or even zero-down payment options, depending on your income, location, or profession. If you’re exploring how to buy a house with no money down, these may be worth a close look.

• VA loans: VA loans are offered through the U.S. Department of Veterans Affairs³ and are available to eligible veterans, active-duty service members, and some surviving spouses. There’s no down payment requirement for VA loans.

• USDA loans: USDA loans are offered through the U.S. Department of Agriculture and are available in qualifying rural and suburban areas and offer a 0% down payment. Note: Rocket Mortgage does not offer USDA loans.

• Freddie Mac’s Home Possible: This conventional loan program allows down payments as low as 3% and is designed for low- to moderate-income borrowers.⁴

• Fannie Mae’s HomeReady: This program offers 3% down options and allows income from non-borrower household members to help you qualify.^{4, 5}

FAQ

Here are the answers to some frequently asked questions about FHA loans. If you want to learn more and narrow down your loan options, don’t forget to check out Rocket Mortgage learning resources.

How much is 3.5% down on a $300K house?

A 3.5% down payment on a $300,000 house is $10,500.

Who pays for the closing costs on an FHA loan?

The buyer typically pays closing costs, but the seller can contribute up to 6% of the sale price toward these costs. Sellers may consider contributing in a buyer’s market where there’s a lot of inventory on the market and buyers have the upper hand in negotiating.

The bottom line: FHA loan down payments are more affordable

If you have a lower credit score and limited savings, FHA loans can offer an accessible path to homeownership. While a down payment is still required, it can be as low as 3.5% of the purchase price, depending on your credit score. Borrowers also have access to more flexible guidelines and may qualify for down payment assistance through local or state programs.

To explore your choices, start your mortgage application with Rocket Mortgage.

¹ To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

² Rocket Mortgage is not acting on behalf of FHA or HUD.

³ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁴ Client will receive a 1 point (1.000) loan level price adjustment (LLPA) credit on HomeReady and Home Possible purchase loans locked on or after January 2, 2024. One point (1.000) is equal to 1% of the loan amount. Minimum credit amount will be $2,000. Maximum loan amount is $350,000. Offer is not available with any other discounts or promotions. Offer cannot be retroactively applied to previously closed loans or loans already in process; offer is not transferable. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply. This is not a commitment to lend.

⁵ The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.