How Much Cash an FHA Loan Purchase Takes After Closing Costs

The Quick Read: Your cash to close is the 3.5% minimum investment plus closing costs and prepaid items, minus your earnest money deposit and any credits. The 3.5% never covers closing costs. They are separate piles of money, and the Loan Estimate shows how they add up for your file. Seller credits, a lender credit, and a documented gift can shrink what you bring, but only within rules covered below.

What Counts as Cash to Close?

Cash to close is the total you bring to the closing table. It is the down payment plus closing costs, minus the deposit you already paid and any credits. The CFPB’s Loan Estimate explainer describes it that way. The lender also has to document where the money came from.

Think of it as one formula:

• Start with your minimum investment (the FHA down payment).
• Add closing costs: lender charges, title, recording, and the prepaid items.
• Subtract your earnest money.
• Subtract seller credits and any other credits.
• The result is your cash to close.

Most buyers pay by cashier’s check or wire. Plan the transfer early, because sourcing the money can take real documentation.

Here is the part buyers trip on. Two numbers get blurred together: the down payment and the closing costs. The FHA treats them differently. The first has a floor set by the program. The second varies by file, and you can often reduce it.

How Big Is the FHA Down Payment?

The minimum investment is 3.5% of the price or the appraised value, whichever is lower. That caps financing at 96.5% loan-to-value (LTV), meaning the loan is no more than 96.5% of the home’s value. Across the wholesale programs I place FHA files with, that applies at a decision credit score of 580 or higher. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

HUD has a lower tier. It allows borrowers with scores of 500 to 579 in at 10% down. The wholesale programs Lendmire works with start at 580, so that lower tier is a HUD rule, not something I can place. Some lenders also set their own floors above HUD’s. Subject to lender guidelines, your score decides which cash number applies.

The “lesser of price or value” wording has a practical edge. HUD’s Handbook 4000.1 glossary defines the base as the “Adjusted Value.” For a purchase, that is the lesser of the price (less any inducements) or the property value. If the appraisal comes in under your contract price, the loan shrinks with it. You then cover the gap in cash or renegotiate.

What Do Closing Costs Add on Top?

Closing costs come in layers. The Loan Estimate groups them as loan costs and other costs. The CFPB’s form guide explains that total closing costs combine total loan costs and total other costs, less any lender credits.

In plain words, the layers are:

• Lender charges. What the lending side charges to set up and process the loan.
• Third-party charges. Appraisal, title work, and recording.
• Prepaid items. Interest from closing day to month-end, plus the first insurance premium.
• Escrow deposits. A starting cushion for property taxes and homeowners insurance.
• Upfront mortgage insurance. Covered next.

Prepaids and escrow deposits surprise people. They depend on your closing date and your area’s tax and insurance schedules. Two buyers with the same price can see different totals for that reason alone. Closing costs also cannot count toward your 3.5%. HUD’s rules keep the minimum investment separate, so the 3.5% is one part of cash to close, never all of it.

Closing costs vary too much from one transaction to the next for a single typical figure to be useful. Your Loan Estimate is the document that shows the numbers that apply to your loan.

How Does the Upfront Mortgage Insurance Premium Work?

FHA loans carry two mortgage insurance charges. The first is an upfront premium of 1.75% of the base loan amount. HUD sets it for all mortgages with a few listed exceptions, per Mortgagee Letter 2023-05. On the programs I work with, it is financed into the loan.

Financed means you do not pay it at the table. That keeps your cash to close lower. The tradeoff is a slightly larger loan balance. The loan gets a bit bigger, and so does the monthly obligation.

The second charge is the annual premium, which is part of your monthly payment, not cash at closing. It runs between 0.15% and 0.75% of the balance each year. Where you land depends on the loan term, the loan amount, and your LTV. On a thirty-year loan above 90% LTV, it lasts for the full term. At or below 90% LTV, it ends after eleven years. These are program facts, not prices, and your lender’s disclosures show the actual figure for your file. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

A common mistake: treating mortgage insurance as a closing cost only. The upfront piece appears at closing, but it is usually rolled into the loan. The annual piece lives in your monthly budget.

How an FHA Purchase Is Built, Step by Step

The cash number moves as the deal works. Here is the sequence.

1. Contract and earnest money. Your deposit is a credit against cash to close. Lenders verify where it came from, especially if it is large compared with your savings history. Documentation is usually a bank statement or a deposit-holder certification.

2. Loan Estimate. The lender issues it, and the cash-to-close table sits on page 2. If a figure surprises you, ask the lender to explain it. The CFPB advises exactly that.

3. Appraisal and Adjusted Value. The appraisal sets the property value. The maximum loan comes from that value, and the gap between loan and price is your cash.

4. Sourcing the minimum investment. Your 3.5% must come from acceptable sources: savings, retirement accounts, or a documented gift. Short-term loans do not count. Seller money cannot fund it either.

5. Credits and closing costs. Seller credits, lender credits, and similar offsets reduce what you owe at closing. They do not count toward your minimum investment.

6. Closing Disclosure. This is the final version of the Loan Estimate. The CFPB’s TILA-RESPA guide shows how to compare the two documents. Final cash to close is on page 3. Read it side by side with your Loan Estimate and ask about every change.

A Worked Example in Percentages

Dollar examples tend to mislead because every file differs. So here is the math in percentages of the purchase price. Say the price and appraised value match.

Walk through it. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Add your closing costs and prepaids. Subtract the deposit you already put down. If the seller agrees to a credit, subtract that too. What is left is your wire or check.

Now run two variations. In the first, the appraisal comes in low. The base for your 3.5% and the maximum loan both fall, and you either renegotiate or cover the gap. In the second, the seller credit is generous and covers most closing costs. Your cash drops toward the 3.5% floor, plus whatever prepaids the credit does not reach.

Notice what you cannot do. You cannot use credits to push the total below the minimum investment. The 3.5% must come from you or from an allowed gift.

What Can Lower Your Cash to Close?

You have four levers. Each has limits.

Seller credits. Sellers and other interested parties may contribute up to 6% of the price toward closing costs. They cannot fund your minimum investment. A credit above actual costs, or above the 6% cap, counts as an inducement to purchase and reduces the price used for Adjusted Value. Commissions the seller customarily pays do not count against the cap.

Lender credits. A lender may offset some costs through its pricing. That changes the structure of your loan terms, so compare full Loan Estimates before assuming a credit is free money. A credit that lowers cash today may sit inside different loan terms.

Gifts. A gift from an eligible donor can cover the whole down payment and closing costs. It needs a signed gift letter and a traceable deposit. Gift money does not count as reserves, though.

Financing the upfront premium. This one is built in, as covered above.

Here is a quick comparison.

Where the Rules Bend or Break

A low credit score. Below 580, HUD’s own tier needs 10% down, a very different cash picture. Across the wholesale programs I use, 580 is the starting point. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Two to four units. An owner-occupied home with up to four units can use the same 3.5% structure when your score and file support it. You must live in one unit. A rental or second home does not qualify, because occupancy decides the leverage. FHA is for your primary residence.

Gift funds and reserves. A gift can get you to the table. It will not count as reserves, and neither will borrowed money or equity from another property. If a lender wants reserves, they need to come from your own assets.

Paid-outside-closing items. If you pay something like an appraisal fee before closing, the amount may be refunded at the table. It counts toward your minimum investment only when the lender documents that you paid with your own funds.

Ratios. Cash is only one test. Your monthly obligations compared with income matter too. The base pair is 31/43, meaning housing costs at 31% of income and total debts at 43%. Documented compensating factors can stretch that to 40/50 at the top tier, and the automated finding governs most files. A big gift does not fix a ratio problem.

Credit events. HUD sets waiting periods after major credit events: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise about any particular file.

County loan limits. These change every year and differ from one county to the next, so check yours before you shop.

Key Terms Defined

Cash to close: The total you bring to closing after adding the down payment and closing costs and subtracting deposits and credits.

Minimum required investment: The FHA’s name for your down payment, at least 3.5% of the lesser of price or appraised value, from allowed sources.

Adjusted Value: The base HUD uses for your loan, set at the lesser of price (less inducements) or the property value.

Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, normally financed into the balance.

Prepaids: Costs paid ahead of time at closing, such as interest to month-end and the first insurance premium.

Inducement to purchase: Seller or interested-party money above the allowed cap or above actual costs, which lowers the price used for the loan.

What About Money After Closing?

Cash to close and cash you should have are two different numbers. After closing, you still have moving costs, immediate repairs, and the first month of living in the home. Some files also require reserves, meaning savings left in the bank after closing. Many buyers who drain every dollar to hit the closing table feel the squeeze within the first month. Leave a buffer.

Five Questions to Ask Your Loan Officer

1. What is my estimated cash to close, and how much of it is the 3.5%?

2. Which prepaids and escrow deposits are included, and how does my closing date affect them?

3. Is the upfront premium financed in this estimate?

4. If I ask for a seller credit, how does the cap apply to my file?

5. If my appraisal comes in low, how does the number change?

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. You can read more about FHA loan programs. Every figure here is 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 that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB Loan Estimate Explainer

2. HUD Handbook 4000.1 Glossary

3. CFPB Guide to the Loan Estimate and Closing Disclosure Forms

4. HUD Mortgagee Letter 2023-05

5. CFPB TILA-RESPA Integrated Disclosure Guide to Form