FHA loans require a down payment, but it can be as low as 3.5 percent of the home's purchase price

You do need a down payment for an FHA loan. The Federal Housing Administration sets a minimum of 3.5 percent of the purchase price. On a $200,000 home, that means $7,000. On a $300,000 home, that means $10,500. This is lower than conventional loans, which typically require 5 to 20 percent.

The 3.5 percent figure is a floor, not a ceiling. Some lenders will ask for more, and some borrowers choose to put down more to reduce their monthly payment or avoid mortgage insurance. But if you have 3.5 percent saved, you meet the FHA minimum.

The down payment itself comes from your own funds—savings, a gift from a family member, or in some cases a grant from a nonprofit or government program. The FHA does not provide the down payment. It insures the loan, which is different. That insurance protects the lender if you stop paying, and it costs you money each month on top of your mortgage payment.

Key Takeaways

  • FHA loans require a minimum down payment of 3.5 percent of the home price, which is lower than most conventional mortgages.
  • The down payment must come from your own resources, a family gift, or a grant program—the FHA does not provide it.
  • You will pay mortgage insurance on top of your monthly payment because the down payment is small, and this insurance is required for the life of the loan if you put down less than 10 percent.
  • Some lenders allow the seller to cover closing costs, which can reduce the cash you need to bring to closing, though the down payment itself must still come from you.
  • Gift funds from family are allowed, but the lender will ask for a signed letter stating the money is a gift and does not need to be repaid.

Where the down payment money can come from

Your own savings are the most straightforward source. You save the amount, document it in your bank statements, and bring it to closing. Lenders will ask to see statements from the past two months to confirm the money is yours and has been there long enough that it does not look like a sudden loan.

A gift from a family member is also allowed under FHA rules. The lender will require a gift letter—a signed statement from the person giving you the money that says it is a gift, not a loan, and does not need to be repaid. The letter should include the amount, the giver's relationship to you, and their signature. Some lenders have a template you can use. The money still needs to show up in your bank account before closing, so the gift typically needs to arrive a few weeks early.

Grants from nonprofits or local government programs can also count toward your down payment. These are less common than gifts or savings, but some cities and states run programs that give money to first-time homebuyers or people in certain income ranges. You would need to find and explore to these programs separately—they are not part of the FHA loan process itself.

Seller concessions can reduce your out-of-pocket costs at closing, but they do not reduce your down payment. If the seller agrees to pay some of your closing costs, you bring less cash to the closing table, but you still need the 3.5 percent down payment from your own funds or a gift.

How mortgage insurance works when your down payment is small

Because you are putting down only 3.5 percent, the lender is taking on more risk. The FHA requires you to pay mortgage insurance to protect the lender. This comes in two parts: an upfront premium and a monthly premium.

The upfront premium is typically 1.75 percent of the loan amount. On a $200,000 loan, that is $3,500. You do not pay this out of pocket at closing—it is rolled into your loan, meaning you borrow it as part of your mortgage. Your monthly payment goes up because you are borrowing more.

The monthly premium varies based on the loan amount and how long you keep the loan. On a $200,000 FHA loan, the monthly insurance might run $150 to $250, depending on your lender and the exact terms. This is added to your principal and interest payment each month.

If you put down 10 percent or more, the monthly insurance eventually goes away—usually after 11 years. If you put down less than 10 percent, the monthly insurance stays for the life of the loan. This is a real cost difference between putting down 3.5 percent and putting down 10 percent or more.

What happens if you do not have 3.5 percent saved

If you cannot save 3.5 percent, an FHA loan is not available to you right now. There is no way around the minimum. Some other loan types have lower minimums—some state programs or credit union loans may allow 0 to 3 percent down—but those are separate from FHA loans.

Your options are to save more, look for a gift from a family member, or explore whether you live in an area with a down payment grant program. Some cities and nonprofits do offer grants, but they are not may provide and often have income limits or other requirements. You would need to search your local housing authority or nonprofit housing organizations to find out what exists in your area.

Saving 3.5 percent takes time, but it is often faster than you think. On a $200,000 home, you need $7,000. If you can set aside $500 a month, you reach that in 14 months. Many people find they can move that timeline up by cutting one or two expenses for a period.

How lenders verify your down payment is real

Lenders will ask for bank statements covering the past two months. They want to see that the money is actually in your account and has been there long enough that it looks like genuine savings, not a sudden deposit that might itself be a loan.

If you receive a large deposit right before explore, the lender will ask where it came from. If it is a gift, you need the gift letter. If it is a bonus or tax refund, you may need a pay stub or tax document to prove it. If it is a loan from someone else, that loan counts against your debt and may disqualify you or lower the amount you can borrow.

The lender will also pull your credit report and verify your income and employment. The down payment verification is one piece of a larger picture. They are checking that you can actually afford the monthly payment, not just that you have the down payment.

Down payment and closing costs are not the same thing

Your down payment is the money that goes toward the purchase price of the home. Closing costs are separate fees—title insurance, appraisal, inspection, attorney fees, taxes, and other charges. These typically run 2 to 5 percent of the purchase price.

On a $200,000 home, closing costs might be $4,000 to $10,000. You need to bring both the down payment and the closing costs to closing. Some of the closing costs can be paid by the seller (through a seller concession), but the down payment cannot. You must cover the down payment yourself.

When you are saving for a home purchase, budget for both. If you have $10,000 saved and the home costs $200,000, you have enough for the down payment ($7,000) but not much left for closing costs ($4,000 to $10,000). Many first-time buyers find they need to save more than just the down payment minimum.

Frequently Asked Questions

Can I borrow the down payment from someone?

No. If the money is a loan, it counts as debt on your credit report and reduces how much you can borrow. The lender will ask about any large deposits and will require documentation. A gift is allowed; a loan is not.

What if I have 5 percent saved instead of 3.5 percent?

You can put down 5 percent. Your monthly mortgage insurance will be lower than if you put down 3.5 percent, and it will drop off after 11 years instead of staying for the life of the loan. The trade-off is you have less cash left over after closing.

Does the seller ever pay the down payment?

No. The seller can pay some of your closing costs, but the down payment must come from you, a gift, or a grant. The down payment is your stake in the home.

Can I use a 401k or retirement account for the down payment?

Some plans allow you to borrow against your balance or withdraw funds early without penalty if you are a first-time homebuyer. This varies by plan type and your age. You would need to check with your plan administrator. The money would then show up in your bank account like any other deposit, and you would need to document where it came from.

What if I put down more than 3.5 percent—does it help my process?

It can help slightly. A larger down payment shows more commitment and reduces the lender's risk, which may help if your credit score or income is borderline. But the main benefit is lower monthly insurance costs and insurance that eventually goes away. The process itself does not become easier, but your long-term costs go down.