FHA Loan Down Payments (2024)

For many prospective homebuyers, coming up with a down payment can be a massive obstacle to homeownership, especially when home prices are high. Federal Housing Administration (FHA) loans are one of several mortgage programs that offer low down payments.

What Is an FHA Loan?

FHA loans are mortgages that are insured by the Federal Housing Administration. However, you’ll go to a private mortgage lender to apply for one. Because they’re backed by a federal agency, lenders take on less risk and can offer competitive loan terms. Lower down payment and credit score requirements make FHA loans popular among low-and moderate-income borrowers.

FHA loans come with the following features:

• Repayment terms. Basic options usually include 15-year and 30-year terms with competitive interest rates.
• Credit score requirements. Borrowers need a minimum credit score of either 500 or 580, depending on their down payment.
• Loan limits. FHA loan limits, which may fluctuate yearly, are based on the property type and location. For 2023, an FHA loan for a one-unit property can go up to $472,030 in most parts of the U.S. The limit rises to $1,089,300 in some high-cost areas.
• FHA mortgage insurance. All FHA loans require mortgage insurance, which protects the lender if a borrower defaults. Borrowers pay an upfront mortgage insurance premium (MIP) equal to 1.75% of the base loan amount. They also pay an annual MIP that ranges from 0.45% to 1.05% of the current loan balance.

Additionally, FHA loans can only be used to buy a primary residence and will need to pass an FHA-approved home appraisal.

Down Payment Requirements for an FHA Loan

The down payment requirements for an FHA loan are tied to the borrower’s credit score. Generally, lower credit scores are riskier for the lender. But borrowers are less likely to default on a mortgage if they have considerable equity in the home. So, lenders control some of their risks by raising the down payment requirement when a borrower has a lower score.

Here are FHA down payment requirements based on minimum credit scores:

• 580 credit score. 3.5% down payment
• 500 to 579 credit score. 10% down payment

How To Get Down Payment Assistance

Down payment assistance programs provide grants or loans that borrowers can use for upfront expenses, such as closing costs and down payments. To begin, you can go through the Department of Housing and Urban Development’s (HUD) list or review Forbes Advisor’s list of down payment assistance programs. You can apply for down payment assistance through your state or local housing agency or work with an approved lender.

Each program has its own eligibility requirements. Some programs are limited to first-time homebuyers, while others accept repeat buyers as long as they haven’t owned a home within the past three years. You may also need to meet income limits.

HUD Homeownership Voucher Program

The Housing Choice Voucher (HCV) program, also known as Section 8, helps low-income families and elderly or disabled individuals pay for rent. Recipients can also choose to use their housing vouchers to buy homes as long as their local public housing agency offers the option.

If your PHA does offer this program and you choose to participate, you’ll need to be a first-time homebuyer and complete a homeownership counseling program.

HomeReady and Home Possible

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible mortgage programs allow homebuyers to put down as little as 3%—regardless of whether the borrower is a first-time homebuyer. However, borrowers can’t earn more than 80% of the median income for their area.

3 Ways To Save for an FHA Loan Down Payment

There are methods to save for a down payment—or at least make it so that you’re not required to put more money down than you can afford.

1. Create a Budget

Some homebuyers may qualify for a no-money-down mortgage or down payment assistance to cover their upfront costs. But if you don’t qualify for either option, you can start putting money aside every month to save up for a down payment and the closing costs. Determine how much you’ll need, and then plan for how you’ll save for it. For instance, you may be able to significantly cut your expenses or get a second job and stash away any extra money you have.

2. Improve Your Credit Score

Your credit score plays a significant role in the interest rate you receive. With an FHA loan, it can impact the size of your down payment. If your credit score is below 580, your minimum down payment will need to be 10% versus 3.5%. Improve your credit score by paying your bills on time, paying down debt and keeping your credit card balances low.

3. Pay Off Debt

Your debt-to-income (DTI) ratio shows a lender how much of your income goes toward your debt obligations. More debt typically increases your chances of being denied an FHA loan or results in a higher down payment.

If you can slash the total amount of debt you owe, you’ll lower your DTI ratio, improving your odds of being approved for a mortgage—without putting a lot of money down. Borrowers who want an FHA loan can’t have a DTI above 43%.

Other FHA Loan Costs

In addition to the upfront MIP, due at closing and the monthly MIP fee, there are typical closing costs associated with getting an FHA mortgage loan, including:

• Mortgage origination fees
• Discount points, where the borrower prepays a portion of their interest rate in exchange for getting a lower rate on the loan
• Lock-in and rate-lock fees in exchange for locking in the borrower at a more favorable interest rate