The Quick Read: your credit score decides how much of your own money must go into the purchase. At a decision score of 580 or higher, the minimum is 3.5% of the price (or appraised value, if lower), which means financing up to 96.5%. Below 580, FHA’s rulebook raises the minimum to 10%, and below 500 there is no FHA loan at all. The wholesale programs Lendmire places FHA files with start at 580, so the 3.5% tier is the one most borrowers actually use.
Key Takeaways
- The “minimum investment” is the down payment, figured as a percentage of the lesser of price or appraised value.
- A 580 decision score unlocks 96.5% financing and a 3.5% minimum investment.
- FHA’s own rules allow a 500–579 tier at 10% down, but the lenders Lendmire works with do not reach below 580.
- Your score is a decision score. It comes from how the lender reads your credit reports, and with co-borrowers the lower score can set the tier.
- Closing costs, prepaid items and the upfront insurance premium are separate from the minimum investment.
- Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
What “Minimum Investment” Actually Means
The minimum investment is the least amount of your own money that FHA lets you put into the purchase. Most people call it the down payment. FHA’s formal name for it is the minimum required investment, and it is the flip side of the maximum loan.
FHA payment estimate
Starting assumptions reflect an example price and the FHA minimum investment. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA loan quote.
Illustrative starting assumptions: a $350,000 price, the FHA minimum investment as the down payment, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not an FHA loan quote; your rate is set by the lender at lock. FHA mortgage insurance follows HUD’s published schedule for the term, leverage and loan size entered; taxes, insurance and dues are editable estimates; closing costs are not included; county loan limits are not checked here. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of FHA, HUD, or the federal government.
Here is the pairing. A 96.5% loan means you bring 3.5%. A 90% loan means you bring 10%. One number is just the other subtracted from 100.
Two details trip people up.
First, the percentage applies to the lesser of the sales price or the appraised value. If you agree to a price and the appraisal comes in lower, the loan is sized off the lower number. You then cover the gap, unless the seller agrees to adjust the price.
Second, the minimum investment is not the same as cash to close. Cash to close also includes closing costs, prepaid items such as insurance and tax escrows, and any reserves you choose to hold. Think of the minimum investment as the floor under your down payment, not the total check you will write.
FHA does not lend the money. Private lenders make the loans, and FHA insures them, as the CFPB’s overview of FHA loans explains. That is why the borrower’s score gets read twice: once against FHA’s rules, and once against the lender’s own standards. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders rather than making them. You can see how the FHA loan programs fit together before you dig into the tiers below.
One note on occupancy. FHA purchase financing is for a home you will live in, one to four units, so occupancy decides your leverage. A rental purchase does not get this 96.5% treatment.
The Credit Score Tiers at a Glance
Three tiers exist on paper, and they work like a ladder. Higher scores buy lower required cash.
| Decision score | Maximum financing | Minimum investment |
|---|---|---|
| 580 or higher | 96.5% LTV | 3.5% |
| 500–579 | 90% LTV | 10% |
| Below 500 | Not eligible | Not applicable |
LTV stands for loan-to-value. It is the loan amount divided by the lesser of price or appraised value.
The jump between rows is large. Ten percent is nearly triple 3.5%. That is why a score that sits at 575 instead of 580 can change the whole shape of your purchase. It is also why the next question matters so much: which score counts?
How the Score Gets Chosen
The score that sets your tier is called the minimum decision credit score. It is not the number on a free credit app, and it is not an average of everything you can find online.
Here is how it works for a typical file.
1. The lender pulls your credit. With scores from all three bureaus, the lender uses the middle one. With fewer scores, the lender follows FHA’s rule for that situation, and a single score is used as it stands.
2. Each borrower gets a decision score. If two people apply together, each has their own number.
3. The lowest one governs. HUD’s guidance on manually underwritten loans says that when some borrowers have no score, the lender uses the lowest score among those who do. By the same logic, a lower-scoring co-borrower can pull the whole loan into a different tier.
4. The tier sets the maximum LTV. Your score either allows 96.5% or caps you at 90%.
5. The LTV sets the cash you bring. Subtract the maximum loan from the lesser of price or appraised value. What is left is your minimum investment.
6. The lender layers its own rules on top. More on that below.
That third step surprises couples. Say one partner has a 640 and the other has a 575. The file is judged at the lower number, even if the higher earner is the stronger borrower. If you are applying together, check both scores before you shop for houses.
HUD, the federal agency that runs FHA, publishes these tiers. Its own consumer Q&A on the minimum score states them plainly: below 500 is ineligible, 500–579 is limited to 90% LTV, and 580 or higher qualifies for maximum financing. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The 580-and-Up Tier: 3.5% Minimum Investment
Most FHA purchases land here, and it is the tier the lenders Lendmire works with start from. At 580 or higher, maximum financing is 96.5% LTV with a 3.5% minimum investment. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
What does the rest of the file look like at this tier?
- Ratios. The base pair is 31/43. That means housing costs up to 31% of gross income and total debts up to 43%, with no compensating factors needed. Documented factors can stretch those numbers, reaching 40/50 at the top of the range. In practice the automated underwriting finding governs most files.
- Mortgage insurance. Every FHA loan carries an upfront premium of 1.75% of the base loan, and it can be financed into the loan. There is also an annual premium, which ranges from 0.15% to 0.75% of the balance depending on term, loan amount and LTV. These are program mechanics, not a price quote.
- Seller help. Seller or interested-party contributions can run up to 6% of the price. They may help with closing costs, not with your minimum investment.
- Co-borrowers. A non-occupant co-borrower is allowed, though that person’s score still counts in the tier decision.
Here is the part most articles skip. At this tier you are not forced to stop at 3.5%. Insurance duration depends on LTV. On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
A 3.5% down payment lands above that line. A 10% down payment lands right on it. So a borrower with the cash available has a real decision to make: a lower amount in, or a premium that ends sooner. A broker can run both versions of the file side by side, and the tradeoff is yours to weigh.
The 500–579 Tier: Why the Floor Is Higher in Practice
On paper, FHA lets a borrower with a decision score from 500 to 579 buy with 10% down, capped at 90% LTV. That rule is real. It is also where a lot of online advice goes wrong. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
A rule written for the whole country is a floor. It is not a promise that any given lender will go there. Lenders set their own minimums above FHA’s, and many sit at 580 or higher. The wholesale programs Lendmire places files with start at 580. A 560 score will not open the 10% door through those channels.
If your score sits in that range, you have three honest paths:
1. Raise the score past 580, then apply for the 3.5% tier. 2. Ask lenders what their own floor is, and get the answer in writing. 3. Wait and rebuild, using the time to save more cash.
Plenty of borrowers think a 500 score “gets” them 3.5% down. It does not. FHA ties 3.5% to 580 and above. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Below 500, Thin Files and Other Edge Cases
Under 500, FHA insurance is off the table. That part is simple. The harder cases are the ones in between.
Thin or non-traditional credit. Some buyers have no credit score, or too little history to generate one. HUD Mortgagee Letter 10-29, the letter that first set the tiers, made these borrowers eligible for maximum financing, but they must meet manual underwriting standards. A person reviews the file instead of software, and the documentation burden goes up. That letter dates to 2010, so treat it as history for how the rule began. Ask a lender how it handles these files today.
Disaster-victim financing. HUD has long had a separate program for borrowers whose homes were destroyed in a declared disaster, with its own terms. It is a different path from the tier table, so ask about it directly if it applies to you.
Programs outside the tiers. The original letter carved out several niche programs from the tier rules. Most purchase buyers will never touch them.
Credit events. After a bankruptcy or foreclosure, HUD sets waiting periods, such as two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules. They are not a promise from any lender, and a lender can ask for more.
Refinances. The 3.5% and 96.5% pairing is a purchase concept. Refinances follow different caps:
- The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the mortgage insurance premium continues.
- The FHA rate-and-term refinance, with an appraisal, reaches 97.75% on a principal residence you occupied for the previous twelve months.
- The FHA cash-out refinance reaches 80% LTV on a home you have owned and lived in for twelve months before the case number. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
If cash-out is your real question, Lendmire’s piece How Much FHA Cash-Out Programs Lend by Credit and Loan-to-Value Tier covers it in depth.
County loan limits. FHA limits vary by county and change each year. They cap the size of the loan, not the percentage you put down, so check your county’s limit before you fall in love with a price.
What Counts Toward the Minimum Investment
Not every dollar you spend at closing counts toward the minimum. Lenders sort the money into buckets, and the buckets do not mix.
| Item | Counts toward minimum investment? |
|---|---|
| Your own savings | Yes, with a paper trail |
| Earnest money you paid | Yes, if sourced |
| Gift from an eligible donor | Generally yes, with a gift letter |
| Seller contribution | No, closing costs only |
| Closing costs and prepaids | No, a separate bucket |
| Upfront insurance premium | No, usually financed |
A few notes on the table.
Source matters. The lender must see where your money came from. Large deposits that lack an explanation slow a file down, so keep your statements clean and stay away from last-minute transfers.
Gifts are real but rule-bound. FHA permits gifts from eligible donors, such as close family. The lender will want a signed letter and proof the funds moved. Terms vary by lender, so confirm before relying on one.
Assistance programs vary. Some down-payment assistance programs are accepted. Others are not, depending on the lender. Ask before you count on one.
Appraisal gaps are on you. If the home appraises below the price, your cash requirement changes, because the percentage is applied to the lower value.
A Scenario in Percentages
Picture two buyers purchasing homes at the same price, each with a steady job and similar income. Run the numbers on each.
Buyer A has a 640 decision score. The loan can reach 96.5% LTV, so the minimum investment is 3.5%. With 31/43 ratios, the file may be reviewed by automated underwriting, and the finding drives the rest.
Buyer B has a 565 decision score. On FHA’s tiers, the maximum is 90% LTV, so the minimum investment is 10%. That is almost triple Buyer A’s cash, before closing costs. And through the wholesale programs Lendmire works with, Buyer B would first need to move past 580. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Same house. Same income. Very different starting cash, all because of one number.
When Your Score Is Close to a Line
The most stressful position is a score a few points shy of 580. A few practical thoughts follow.
Know which score you are being judged on. The middle-of-three rule means your lowest bureau score is not always the one used. Ask your loan officer what each bureau shows.
Expect the lender to check again. Credit can be reviewed again before closing. A new card, a missed payment or a large balance can push you over or under a line. Hold steady until the loan is done.
Co-borrowers can help or hurt. Adding a stronger co-borrower does not lift the tier, since the lowest score governs. Removing a weaker one may, if the remaining borrower qualifies alone on income.
Small fixes can matter. Paying down a card balance before the lender pulls credit can lift a score. That is a conversation for your loan officer, because timing matters.
Do not shop scared. CFPB’s shopping guide recommends getting preapprovals from at least three lenders. It says several within a short window should have no major impact on your credit score. Comparing is cheap. Guessing is not.
Lender Overlays: The Second Gatekeeper
The tiers above are FHA’s floor, not any lender’s. Lenders add their own standards, called overlays, and they can ask for a higher score, more reserves or lower ratios than FHA requires.
In practice, some lenders set a higher floor than others, and some are stricter on cash-out refinances than on purchases. Nobody can tell you from a table what a particular lender will do. Ask each one for its own minimum score, in writing, before you spend money on an appraisal.
What the Choice Looks Like in Practice
For most buyers the decision comes down to three questions.
1. Does my score clear 580? If yes, you can plan around 3.5%. If no, repair credit or accept that a higher cash requirement is on the table.
2. How much cash do I want to bring? The 3.5% minimum is a floor, not a target. Putting more in lowers your loan amount. At exactly 10% down, the annual premium on a thirty-year loan ends after eleven years instead of lasting the term. Weigh that against keeping cash in reserve. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
3. Is FHA the right loan at all? The CFPB says that for borrowers with good credit and a 10–15% down payment, FHA tends to cost more than conventional. For lower scores or smaller down payments, FHA can often be a more affordable option. There is no hard-and-fast rule, so compare actual quotes on the Loan Estimate.
Borrowers with a middling score and little savings often find FHA fits well. Borrowers with strong credit and a large down payment should ask for a conventional comparison too.
Checking Your Own Numbers
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. Bring your scores, a rough price range and any co-borrower details. A loan officer can then map your tier and your cash needs against what the lenders in its network look for. If you hold equity in a home already and are curious about drawing on it later, Lendmire’s guide FHA Cash-Out Credit Tiers and Maximum Draw by Score lays out the next step.
Key Terms Defined
Minimum required investment: The least amount of your own money FHA requires in the purchase, set as a percentage of the lesser of price or appraised value.
Decision credit score: The score a lender uses to place your file in an FHA tier. It follows FHA’s rules for choosing among your bureau scores and across co-borrowers.
LTV (loan-to-value): The loan amount divided by the lesser of the price or the appraised value. A 96.5% LTV means a 3.5% down payment. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Overlay: A rule a lender adds on top of FHA’s minimum, such as a higher score requirement.
Upfront premium: A one-time FHA mortgage insurance charge, set at 1.75% of the base loan, that can be financed into the loan.
Annual premium: The ongoing FHA mortgage insurance charge, folded into the monthly payment. It ranges from 0.15% to 0.75% of the balance depending on term, amount and LTV.
Manual underwriting: A file review done by a person rather than automated software, used for thin credit or when automation asks for it.
Frequently Asked Questions
Can I get an FHA loan with a 3.5% down payment and a 560 score?
Not through the lenders Lendmire works with. FHA’s rules tie 3.5% to a decision score of 580 or higher. A score from 500 to 579 is limited to 90% LTV on paper, meaning 10% down, and the wholesale programs Lendmire places loans with start at 580. Raising the score past 580 is the most direct way to the lower down payment. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Do closing costs count toward the FHA minimum investment?
No. The minimum investment is a down payment figure, and closing costs sit in a separate bucket. Seller or interested-party contributions can help with closing costs, up to 6% of the price, but they cannot stand in for your own minimum. Your lender will total both buckets into your cash to close.
Can a gift cover my entire FHA down payment?
Often, yes, if it comes from an eligible donor and the lender can document it. Expect a signed gift letter and proof that the funds moved.
What happens if my score drops after I apply?
A lender can check your credit again before closing, so a drop can change your tier or even your eligibility. If you fall below 580, the 3.5% minimum no longer applies. Avoid new credit and keep balances steady until the loan is done.
Does a higher down payment lower my FHA mortgage insurance?
It can shorten it. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. The annual premium also depends on loan amount and term, so the exact effect depends on your file.
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.
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References
4. CFPB: Shopping for a mortgage
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out Requirements for a Condo Building in Litigation · FHA Cash-Out Payment History Requirements for an Existing FHA Loan · Can a Homeowner With an FHA Loan Use an FHA Cash-Out for Any Purpose?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.