See our Rates Call us

FHA Loan Down Payment

Money Background - US Currency
Photo by Blogging Guide on Unsplash
Josh Rapaport
January 28, 2023

An FHA loan refers to a government-backed mortgage that the Federal Housing Administration backs. These loans attract low credit and down payment requirements for qualified applicants.

Most first-time home buyers prefer these loans because they are easier to apply for than conventional loans. In this guide, you’ll get to learn more about the FHA loan down payment, including its benefits, limits, and whether it’s the right loan for you.

A Detailed Guide on FHA Loan Down Payments

FHA loans are designed to assist and encourage first-time homebuyers to own a home with a down payment that’s as low as 3.5%.

So, Why Rent When You Can Own with an FHA Loan?

A down payment is an out-of-pocket investment you must make when buying a home. A private lender will typically calculate this amount as a percentage of the buying price determined by the loan requirements.

The upfront payment is viewed as an investment in the mortgage, which is the amount you stand to lose if you fail to make your monthly payments. The factors that will determine how much you need to raise will include the following:

  • Your credit scores
  • Down payment assistance programs
  • Friends and family contributions towards the purchase price

FHA Loan Advantages

The loans are backed and insured by the federal government and are provided by the Federal FHA, as their name suggests. As a mortgage, it offers numerous significant benefits to first-time homebuyers, including the following:

  • Affordable rates
  • Flexible credit requirements
  • 3.5% to 10% down payment

These benefits make it the perfect program for individuals with low cash reserves.

FHA Loan Down Payment Minimums

If you’re interested in learning about the down payment required for a FHA loan, you should note that you can either pay as low as 3.5% or as high as 10%. Your credit profile will determine the percentage. For example:

  1. Anyone having a credit profile of 580+ will pay the lowest amount possible.
  2. Those with credit scores lying between 500 and 579 will pay 10%

Most borrowers opt for an FHA loan due to their easy qualification requirements, allowing for some credit history blemishes and a lower credit score. Their competitive interest is what makes them an excellent option for first-time home buyers.

Make sure to get your credit scores from all three bureaus before application.

Can You Get 5% Down FHA?

The FHA loan is an excellent fit if you have a small amount saved up as a down payment or have a low credit score. With this loan, you can buy a home with a credit score as low as 580 points.

It allows you to enjoy a rate as low as 3.5% for such a score. So, can you get 5% down, FHA? Yes! It’s possible, depending on your current credit score rating. Remember to check your FICO scores and down payment requirements before applying for an FHA loan.

Will You Need to Make a 20% Down Payment?

One of the things that you’ll love about an FHA loan is that this particular requirement doesn’t apply to them. The highest down payment for borrowers with low credit scores (500 to 579) is 10%, which means you don’t have to worry about paying anything as high as 20%.

Please note that these are the minimum FHA loan down payment requirements and that the requirements set by the lender may vary. But generally speaking, borrowers aren’t asked to pay a large down payment on these loans.

Gifts and FHA Loans

The basic rule of thumb is that an applicant must make a down payment that’s within the set limits. Depending on your state and county limits, your lender will guide you on how much to pay.

You must pay this down payment upfront, which means it’s impossible to have a lender include it in the cost of your mortgage. Depending on the circumstances, the FHA may require documentation of the source of this money.

What Does the FHA Say About the Minimums Charged by Private Lenders?

It’s crucial to remember that while the FHA sets the minimum requirements, District Lending and other private lenders are free to come up with their own lending criteria. This means that the application requirements may be harsher than expected.

A good example is an applicant having a poor credit profile. Such a borrower will have a harder time getting someone to lend them the money they need than those with excellent profiles. Therefore, the best option is to check what various companies are offering before settling on one.

Are FHA Loans Only for First-Time Homebuyers?

FHA loans are the best option for most homebuyers, not just first-time buyers. These loans have flexible requirements compared to traditional loans, making them attractive to those who want to make a low-down payment.

Anyone can apply for an FHA loan.

FHA Loans: A Guide on the Mortgage Insurance Requirements

The mortgage insurance requirements for an FHA loan are usually stricter than those for other mortgage loans. Often, the applicant will need to pay mortgage insurance premiums:

  1. Upfront MIP: The FHA loan applicant must pay an upfront MIP, which they can have financed into the mortgage. Please note that doing so will cause the monthly payments to increase. The upfront MIP is generally charged as 1.75% of the mortgage.
  2. Annual MIP: It’s an ongoing yearly premium ranging between 0.45% and 1.05%. The provider then divides this amount by 12 and includes it in your monthly repayments. The total cost of this premium depends on the following:
    1. Your mortgage terms
    2. Loan balance
    3. Your loan-to-value ratio

For a homebuyer who decides to borrow $150,000, it means that the upfront MIP for them will be around $2,625. In the same breadth, the annual MIP will range between $675 and $1,575.

Unlike the case with private mortgage insurance for conventional loans, FHA borrowers who raise less than 10% are expected to pay these premiums for the remainder of their mortgage. However, they can stop paying them after selling their home or refinancing the loan.

Getting Rid of Mortgage Insurance Premiums for Your FHA Loan

One thing you need to know upfront is that the mortgage insurance premiums on the FHA loan will not drop off automatically, as is the case with conventional loans. It means that these premiums will last for the remainder of your loan.

Luckily for you, you can always opt to refinance the loan by going for one that doesn’t have a premium. But for this to happen, you’ll have to start by rebuilding your credit profile to a point where your income easily surpasses your debts.

Gift Rules that Apply for FHA Loans

The down payment gifts and rules for FHA loans state that borrowers who have received the loan can accept money as a gift to put toward the down payment. For this, there are several rules that you’ll need to remember:

  • Assistance can come from employers, friends, family, and labor unions
  • Nonprofit organizations can also make contributions towards the down payment

According to the Department of Housing and Urban Development, the following are prohibited from contributing towards the down payment:

  • Anyone who has an interest in selling a home
  • Home builders
  • Real estate brokers or agents
  • Sellers

Down Payment Assistance Programs (DPAS) You Should Know About

Almost every state today runs a type of DPAS, with most cities and states replicating the same at the local level. Before submitting your application, make sure to go through the requirements set out by each program:

An example of the requirements you may encounter are:

  1. Some DPAS only offer this help to first-time home buyers
  2. assistance with the loan closing costs

Some applicants are lucky enough to receive low-interest loans that they can pay down at the same time as their mortgage. Others end up receiving grants they don’t need to pay back, bringing them closer to owning a home.

Are There Alternatives to FHA Loans?

FHA loans aren’t the only option available to anyone looking to buy a home. With the right research, you can get access to several other similar loans, though each will attract varying requirements.

Notable examples include the following:

  1. Rural Development Loans: These loans are issued by the US Department of Agriculture and are similar in nature to those offered by the VA and the FHA. The loans primarily target low- to moderate-income applicants living in rural areas. They are an excellent option for individuals who don’t have much in the way of savings, as they offer zero down payments and are much cheaper than what is readily available in the market.
  2. VA Loan: As suggested by its name, this is a program from the Department of Veterans Affairs targeting eligible service members, veterans, and surviving spouses. Loans under this program are created by private lenders but guaranteed by the VA.
  3. State and Local Programs: Many nonprofits, local governments, and states provide programs that aim to make homeownership a reality for low-income families. Most of them target those buying a home for the first time, although some may extend help to previous homeowners.

Requirements to Apply for an FHA Loan in 2023

Apart from saving up enough money for a down payment and having a stellar credit profile, there are a few other things you may want to know before submitting your application:

  • State and County Limits: You can’t borrow more than $420,680 to buy a standard home in most areas. However, this amount will rise significantly if your area has high home prices.
  • The amount of debt you have compared to the amount you earn on a monthly basis.


What is District Lending?

District Lending is a money lender specializing in FHA and 100+ other types of loans. Its loan specialists will guide you on how to get your FHA loan percentage down and even how to refinance your loan.

Can you get 5% down FHA?

Yes, according to the FHA requirements, the minimum rate you can get is 3.5%, with a credit score of 580 or higher. The maximum rate is 10% if you have a rate of between 500 to 579.

Do FHA Loans require 20% down?

No! The highest down payment you can make with an FHA loan is 10%.

Buy a home and refinance at no cost.
get a quote