How to Buy a Home With the Smallest FHA or VA Down Payment

The Quick Read: VA is the smaller of the two. An eligible veteran or service member can often buy with no down payment at all. FHA sets a floor of 3.5% down, and it applies only when your decision credit score is 580 or higher. Which one you can use depends on your service history, your credit, and what the appraisal says.

FHA and VA at a Glance

Treat the table as a map, not a verdict. Every figure is subject to lender guidelines and a full file review. Nothing here is a commitment to lend.

How Does the FHA Minimum Work?

On FHA, the maximum loan is 96.5% of the home’s value, so the minimum investment is 3.5%. That 3.5% is measured against the lesser of the purchase price or the appraised value. If the appraisal comes in under the price, your cash requirement follows the lower number.

Your credit score sets the tier. At a decision score of 580 or higher, you reach the 96.5% maximum. The decision score is the score the underwriter uses to place your file, not an average of everything on your report. Federal rules allow a 10% down tier for scores between 500 and 579. Across the wholesale programs Lendmire places FHA files with, financing starts at 580, so that lower tier is not reachable through them. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Here is what else the FHA loan programs ask of the file:

• The home must be your principal residence, with one to four units.
• A non-occupant co-borrower is allowed.
• Seller or other interested-party contributions are allowed up to 6% of the price, but only toward closing costs.
• Debt ratio limits vary by scenario. Documented compensating factors can stretch them at the top tier, and an automated finding decides most files.
• County loan limits apply, and they change every year. Ask for the current limit in your county.

Buying a home to rent out is a different loan. Occupancy decides the leverage.

How Does VA Get to Zero?

The VA does not make your loan. A private lender does, and the VA guarantees part of it. According to the VA’s own description of the program, the loan does not require a down payment or monthly mortgage insurance. That guarantee is what lets a lender skip the down payment.

You prove eligibility with a Certificate of Eligibility, which documents your service history. Your lender can usually help you pull it. Get it early, because it tells you whether you start with full entitlement.

Entitlement is the amount of guarantee the VA gives you. With full entitlement, zero down is on the table. If you used part of it on an earlier loan and still hold that loan, a down payment can come back into the picture.

Is the Down Payment the Same as Cash to Close?

No. Cash to close is the down payment plus everything else due at the table. A buyer who focuses only on the down payment gets surprised at closing.

Use this formula:

Cash to close = down payment + closing costs + prepaid items + inspection and appraisal fees − credits.

Prepaid items are bills you pay in advance, such as the first year of homeowners insurance and some property tax. Credits come from a seller, a lender, or a gift.

Picture an FHA buyer at 3.5% down. The base loan is 96.5% of the price. The 1.75% upfront premium is added to that loan, so the balance becomes roughly 98.2% of the price. You did not pay the premium in cash, but you do carry it. It shows up in your balance and your payment. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

A VA buyer at zero down has a similar structure. The funding fee can be paid in cash or rolled into the loan, according to the VA Home Loan Guaranty Buyer’s Guide. Rolling it in lowers your cash today and raises your balance.

Where Can the Money Come From?

On FHA, the minimum investment can come from your savings, a documented gift, or a down payment assistance program. A seller cannot pay it for you.

• Gifts. Acceptable donors include a family member, an employer or labor union, a close friend with a clearly documented interest in you, a charity, or a government homeownership program. A gift means no expectation of repayment. Your lender will want a gift letter and a paper trail from the donor’s account.
• Borrowed money. Cash advances and payday loans are not acceptable sources.
• Assistance programs. HUD’s page on how FHA can help you buy a home says local and state programs may provide grants toward the down payment or closing costs. Ask your lender which ones exist where you are buying.
• Seller credits. Seller money is a different bucket. Per HUD’s guidance on interested-party contributions, those funds may not be used for the minimum investment. Contributions above 6%, or above the actual costs, are treated as inducements to purchase. They reduce the price used to compute value dollar for dollar. They must also be documented in the sales contract and on the Closing Disclosure.

So a “seller-funded gift” is not a gift. Seller credits can lower your closing costs. They cannot replace your down payment.

On VA, there is no minimum to fund when you have full entitlement. Your cash goes to closing costs, prepaid items, and any funding fee you choose to pay up front.

What Does the Small Down Payment Cost You Later?

Both programs trade a lower cost today for a higher cost over time. The CFPB notes that FHA is often a more affordable option for buyers with lower scores or smaller down payments. It also says FHA tends to cost more than conventional for borrowers with good credit and a 10% to 15% down payment.

Here is how the cost works on FHA:

• Upfront premium: 1.75% of the base loan, usually financed.
• Annual premium: between 0.15% and 0.75% of the balance. The exact level depends on the term, the loan amount, and your LTV. LTV, or loan-to-value, is your loan as a share of the home’s value.
• How long it lasts: on a thirty-year loan above 90% LTV, the annual premium lasts for the whole term. At or below 90%, it ends after eleven years.

That last point matters. A 3.5% down payment means more than 90% LTV, so the premium stays for the life of the loan. Putting down more can shorten it. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

On VA, there is no monthly mortgage insurance. The cost is the one-time funding fee. It is a percentage of the loan amount, not the purchase price. It is lower when you put more down, and it differs for first-time and repeat use of the benefit. Veterans who receive VA compensation for a service-connected disability do not pay it. The VA page lists other exemptions.

Both programs have other costs too. A VA loan is not a no-cost loan. You still pay closing costs.

Which One Should You Choose?

If you are eligible for only one, the choice is made. If you qualify for both, start with cash and monthly cost.

1. Compare cash needed. VA needs less up front. FHA needs 3.5% down. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

2. Compare the monthly picture. VA has no monthly mortgage insurance. FHA’s annual premium lasts for the term at low down payments.

3. Check your credit. FHA’s tiers tie your down payment to your score. VA lenders set their own credit standards.

4. Check the property. Both programs have appraisal and condition standards. A home that needs work can stall either one.

5. Check entitlement. If your VA entitlement is partly used, the zero-down advantage may shrink. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

In many cases, a buyer who qualifies for both finds VA cheaper over time. But it is a real decision, not a rule. The right answer depends on your file. A broker who works with both can run each side by side.

Where the General Rule Breaks

There is no true zero-down FHA loan. The FDIC’s summary of the FHA program confirms that insurance lets lenders finance up to 96.5% of value. A score of 580 or higher qualifies for that maximum. Below 500, a borrower is not eligible for FHA-insured financing.

HUD-owned homes. Some HUD-owned homes are offered to owner-occupants with a much smaller minimum investment. It depends on the property and how it is listed. Ask before you count on it.

A score at the edge. HUD sets the floor. Individual lenders can set a higher one, and some do. A buyer who is turned down at a given score may have been turned down by the lender, not by FHA. This is where a broker helps, because wholesale lenders do not all set the same overlays.

Split scores between co-borrowers. The lower decision score can place the whole file in the lower tier. Check who is on the loan.

VA appraisal below the price. On a VA loan, the VA assigns the appraiser. If the value comes in short, you usually have three choices: renegotiate, pay the difference, or walk away.

VA property standards. The VA requires homes to meet minimum property requirements before it guarantees the loan. Needed repairs can be written into the appraisal as conditions. A home with peeling paint or a bad roof can slow a VA file.

A missed fee exemption. If you are exempt from the funding fee but your Certificate of Eligibility does not show it, the fee may be collected first. Check your paperwork early.

What Does the Buying Process Look Like?

1. Check your eligibility. Get your Certificate of Eligibility if you served. Pull your credit and learn your decision score.

2. Get preapproved. Share income, asset, and debt documents. The lender runs the file through an automated finding.

3. Map your cash. Add the down payment, closing costs, prepaids, and fees. Subtract credits. Identify any gift or assistance.

4. Shop within your range. County loan limits apply to FHA.

5. Write the offer. Put seller credits in the contract so they appear on the Closing Disclosure.

6. Order the appraisal and inspection. Value and condition can change your numbers.

7. Close. Review your Loan Estimate against your Closing Disclosure and confirm the cash figure.

What If You Don’t Qualify?

If you are not VA-eligible and your score is below 580, you still have choices. Work on your credit and reapply. Look at conventional loans with low down payments, or at assistance programs. FHA also allows a co-borrower who will not live in the home, which can help some files. A broker can compare these options for your file.

Key Terms Defined

Minimum required investment: the smallest amount of your own money FHA allows toward the purchase, 3.5% at a 580+ score.

Decision credit score: the score the underwriter uses to place your FHA file.

LTV: loan-to-value, your loan balance divided by the home’s value.

Mortgage insurance premium: FHA’s upfront charge and annual charge that protect the lender if you stop paying.

Funding fee: VA’s one-time charge, a percentage of the loan, which can be paid in cash or financed.

Entitlement: the amount of loan guarantee the VA extends to you.

Interested-party contribution: money from a seller, agent, or builder, which cannot count toward your down payment.

Your Next Step

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. A comparison against VA is part of that work when you are eligible for both. Lendmire is a mortgage broker that arranges these loans through wholesale lenders.

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. VA – Funding fee and closing costs

2. VA Home Loan Guaranty Buyer’s Guide

3. HUD FHA Q&A – how FHA can help me buy a home

4. HUD FHA Q&A – interested party contributions

5. CFPB – FHA loans

6. FDIC – FHA 203(b) summary