The FHA down payment rules you should know

Mature couple reviewing loan documents together.Image: Mature couple reviewing loan documents together.

In a Nutshell

FHA loans require a minimum down payment of 3.5% (and more in certain other instances). Also keep in mind that the FHA has specific requirements for where your down payment can come from.
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Saving up to make a down payment on a home can be intimidating.

But some mortgages have lower down payment requirements — including FHA home loans, which require a minimum down payment of 3.5%.  Let’s take a closer look at FHA down payment requirements, as well as what sources you may be able to tap for that payment.



What are FHA down payment requirements?

FHA loans are mortgages backed by the government. They’re typically designed for first-time homebuyers and homebuyers who don’t have great credit. The Federal Housing Administration doesn’t lend you the money for your mortgage, but it insures loans from FHA-approved lenders in the event you default on your mortgage.

The FHA requires that borrowers have credit scores of 580 or higher to qualify for a 3.5% down payment. And if your score falls between 500 to 579, your minimum down payment is 10%. But additional lender standards may apply. These “lender overlays” may require higher credit scores depending on the lender, the loan and other variables.

When do I need to make the down payment?

Typically, you won’t need to make your FHA down payment until your closing date. Your lender will direct you to either make a wire transfer or write a check payable to either the title company or attorney you’re working with at closing.

 FHA rules for down payment sources

The FHA has strict rules about where the money for your down payment comes from. For instance, if you receive money as a gift from a relative to make your down payment, the FHA requires a letter stating the money is a gift, not a loan you’ll have to pay back. The FHA allows down payment funds from the following approved sources:

  • Cash and checking or saving accounts
  • Investment funds
  • Gifts
  • Cash from the sale of personal or real property
  • Loans and grants
  • Employer assistance

Additionally, you can’t make your down payment with financing like a payday loan, credit cards or a cash advance because the FHA doesn’t want homebuyers to get further into debt to make their down payment.

You also can’t obtain down payment assistance from charitable organizations that provide monetary gifts to pay off installment loans, credit cards, collections, judgments, liens or similar debts.

But you can get the money for your down payment from charitable organizations that provide homeownership assistance to low- and moderate-income buyers and first-time homebuyers.

Other FHA loan rules for down payments

Aside from the rules above, the FHA also prohibits you from using money from interested third parties (like your seller, real estate agent, builder or developer) toward your down payment. But these parties are permitted to contribute toward closing costs, up to 6% of the sale price. Money exceeding that amount is considered an inducement to purchase by the FHA and is prohibited.

Your lender will verify and document the amount and all sources of your funds for your down payment. So borrowers using their own money must show their ability or evidence to have saved that amount.


What’s next?

Many homebuyers are interested in FHA home loans because of the low minimum down payment and competitive credit score requirements.

If you think an FHA home loan may be a good idea for you, take a look at your preferred lender site for more information about the lender’s FHA standards.

For more information on FHA loans, check out our article about FHA loans to find out who qualifies for an FHA loan and more about the process so you can get started on your homebuying journey.


About the author: Jennifer Nelson is a freelance content marketing writer and ghostwriter who specializes in health, home and money. She writes for AARP, Costco Connection, NextAvenue.org, Realtor.com, WebMd and many others. Read more.