FHA Loan Down Payment Requirements for a First-Time Buyer

The Quick Read: The minimum down payment on an FHA purchase is 3.5% of the home’s value, with a decision credit score of 580 or higher. That is the same as financing up to 96.5% of the value. It is not zero down, and it is not a first-time-buyer-only rule. The percentage applies to the lesser of the price or the appraised value, and it is not the only cash you will need at closing. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

What an FHA Down Payment Actually Is

An FHA loan is made by a private lender and insured by the Federal Housing Administration, a government agency. The agency does not lend you the money. The insurance protects the lender if a borrower defaults, and that protection is why the terms can be more flexible than a typical conventional loan. HUD describes the basic program as insurance for buying or refinancing a principal residence, covering one-to-four unit properties, with financing of approximately 96.5%.

Flip that around and you have the down payment. Financing 96.5% means you put in 3.5%. Down payment and loan-to-value (LTV, the loan as a percentage of the home’s value) are two sides of one number.

Here is a point that trips up a lot of buyers: “first-time buyer” is a label, not an eligibility test. HUD frames FHA as a good option for first-time buyers, but repeat buyers can use it too. Lendmire arranges FHA loan programs for both groups through wholesale lenders, and the down payment rules are identical.

How Is the 3.5% Calculated?

The 3.5% is measured against the “adjusted value,” not simply the sticker price. For a purchase, HUD’s handbook glossary defines that as the lesser of the purchase price (less any inducements to purchase) or the appraised property value.

In practice, that means the appraisal sets your maximum loan. Picture a home under contract at a certain price that appraises lower. The lender measures against the lower figure, so the loan shrinks and the cash you owe at closing grows. Not fun, but better to know before you write the offer.

HUD’s formal term for your minimum contribution is the Minimum Required Investment, or MRI. It is the cash or cash-equivalent you must put in. HUD separates it from Total Required Investment, which is the down payment plus the transaction costs you pay. Think of MRI as the floor and Total Required Investment as the real number on your bank statement.

Credit Score and the Down Payment

Your down payment depends on your decision credit score. The lender pulls your credit and arrives at one score for the file, and that score sets your maximum financing.

HUD’s knowledge base sets those tiers. In real life, though, the wholesale programs Lendmire places FHA loans with start at 580. So HUD allows a lower tier, but the practical floor for most files is 580.

Some lenders also add their own score minimums above HUD’s. These are called overlays. One lender may take a file another declines, which is a big reason brokers shop several wholesale lenders rather than one.

A score just under 580 puts you at a choice. You can spend time raising it and then buy with 3.5% down, or look at other loan types. A broker can run that comparison with you before you commit to either path.

Where the Down Payment Can Come From

You do not have to save every dollar yourself. The lender will, however, need to document where each one came from.

Allowed sources typically include:

• Your own savings, checking, or other documented accounts
• Gift funds from an acceptable donor
• Down payment assistance (DPA) from a state or local homebuying program

Not allowed:

• Money you borrowed without collateral behind it, such as a cash advance or payday loan
• Cash that cannot be traced to a verifiable source

Gift funds

A gift is money with no expectation of repayment. Acceptable donors are generally family members and a few other defined parties, and the lender will want a signed letter stating that the money is a gift. Every program has its own paper requirements, so confirm them with your loan officer. The lender also traces the money from the donor into your account.

Large deposits that appear from nowhere can undermine a down payment story in review. Move money early. Keep statements. Do not shuffle funds between accounts without a reason you can document.

Down payment assistance

HUD’s Buying a Home page points buyers to homebuying programs in their state. Each program sets its own rules, which often include income limits, homebuyer education, and conditions on repayment. Rules differ by program, so check each one against your file.

Seller Money and Interested Parties

Seller contributions can help with closing costs. Across the wholesale programs, seller or interested-party contributions are allowed up to 6% of the price. That is a limit set by the program, and it covers costs, not your minimum investment. Money from the seller, a builder, or an agent cannot be used as your required down payment.

Down Payment Is Not Cash to Close

This is the gap most first-time buyers miss. Your total cash needed includes:

1. The down payment (3.5% of adjusted value at minimum)

2. Closing costs and prepaid items, such as the first insurance premium and escrow deposits

3. Any reserves a lender may want to see, depending on the file

Closing costs vary widely by location and loan. You will see them itemized on your Loan Estimate and Closing Disclosure, the two standard forms every consumer mortgage must provide. Compare those forms line by line when you shop.

Credits and concessions can reduce what you bring, and gifts or assistance can supply some of it. But start your savings target with the full picture, not the 3.5% alone.

Mortgage Insurance: The Cost Behind the Low Down Payment

The CFPB states that mortgage insurance is required on all FHA loans. The low down payment comes with that tradeoff. There are two parts:

• An upfront premium of 1.75% of the base loan amount. It can be financed into the loan rather than paid in cash.
• An annual premium between 0.15% and 0.75% of the balance, depending on the loan term, loan amount, and LTV. It is collected monthly.

Duration matters. On a thirty-year loan above 90% LTV, the annual premium lasts for the full loan term. At or below 90% LTV, it ends after eleven years. That is a very different outcome from conventional private mortgage insurance, which can usually be removed as equity builds. With FHA, a bigger down payment can shorten the premium, but the path for most low-down-payment buyers is to refinance later.

These are program facts, not price quotes. Your actual costs appear on your Loan Estimate.

3.5% Down vs. Putting More Down

Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

You can always put down more than the minimum. Should you?

The CFPB’s general principle holds up: the less you put down, the more you pay in interest and fees over the life of the loan. A larger down payment means a smaller loan and a smaller monthly payment.

The CFPB also notes that with good credit and a medium down payment (10-15 percent), FHA tends to cost more than conventional. With a lower score or a smaller down payment, FHA can often be a more affordable option. That cuts both ways. If your score is strong and you have 10% to 15% available, get a conventional comparison too.

Honestly, this is a genuine toss-up for many buyers. Keeping cash for repairs and emergencies often beats shaving the loan by a few points. Run both options with your own numbers.

Where the General Rule Breaks

Sub-580 scores. HUD allows 500-579 at 10% down. Gift money can supply the cash but does not lower that percentage. The wholesale programs Lendmire works with begin at 580. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Multi-unit homes. FHA covers one-to-four unit properties. You must live in the home as your principal residence, and the 3.5% minimum can apply to a multi-unit purchase, subject to lender guidelines. Loan limits are higher for 2-4 units.

Occupancy. FHA is for a home you will live in. A non-occupant co-borrower, such as a parent, is allowed on the loan. If your question is about buying a rental or second home, occupancy decides the leverage, and FHA is not the tool for that.

Gift of equity. When a family member sells you a home below value, the equity they give up can count as a gift. Confirm treatment with the lender early, because the paperwork is unusual.

Loan limits. FHA loan limits are set by county and change every year. Limits apply to the loan amount, not the price, so a larger down payment can support a higher price. Check your county’s limit before you shop.

Credit events. HUD sets waiting periods after major credit events, including two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules. A lender can apply stricter ones.

What Lenders Look at Beyond the Down Payment

Across the wholesale programs Lendmire works with, the standard debt-to-income pair is 31/43. That means housing costs up to 31% of income and total debts up to 43%. Documented compensating factors, like strong savings or a low payment increase, can stretch that as far as 40/50 at the top tier. An automated underwriting finding governs most files, and every figure is subject to lender guidelines and full file review.

The home must also meet FHA’s minimum property standards through an FHA appraisal. A property that fails may need repairs before closing.

A Practical Savings Plan for a First-Time Buyer

Work backward in four steps:

1. Set a target price range. Include the county loan limit.

2. Calculate 3.5% of that price. Add closing costs and prepaids as a separate line, and keep a cushion for repairs.

3. Check your decision score. If it is near 580, get a read from a broker before you apply anywhere.

4. Document as you save. Keep statements. Log every gift with a letter. Avoid large undocumented deposits.

If you come up short, your options are a lower target price, seller concessions, assistance programs, a gift, or waiting. For readers using a gift to cover cash, Lendmire’s article Can a First-Time Rental Buyer Use Gifted Funds for a DSCR Down Payment? covers the documentation habits, though that piece is written for a different loan type.

Key Terms Defined

Decision credit score: The single score a lender uses to place your file in a program tier.

Loan-to-value (LTV): The loan amount as a percentage of the home’s value.

Minimum Required Investment (MRI): The least cash or cash-equivalent HUD requires you to put into the purchase.

Adjusted value: For a purchase, the lesser of the price (less inducements) or the appraised value.

Overlay: A lender’s own rule that is stricter than the program’s minimum.

Down payment assistance (DPA): A program, usually run by a state or local agency, that helps cover down payment or closing costs.

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD – 203(b) Basic Home Mortgage Loan

2. HUD 4000.1 Glossary (MRI, Adjusted Value)

3. HUD Answers – minimum down payment for FHA

4. Buying a Home page

5. CFPB – FHA loans