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FHA Down Payment Requirements

FHA Down Payment Requirements

The FHA down payment is 3.5%. Everyone knows that number. What most people don’t know is how much flexibility sits around it, and that flexibility is why FHA is often the right loan for buyers who have income but not savings.

The requirement

Credit Score Minimum Down Payment
580 and above 3.5% of the purchase price
500 to 579 10% of the purchase price
On a $400,000 purchase, 3.5% is $14,000. That’s the number FHA wants to see at closing. Where it comes from is a separate question, and that’s where FHA is generous.

Where the money can come from

FHA accepts down payment funds from more sources than conventional loans do, and with fewer strings.

Your own savings.

Checking, savings, investment accounts. Standard documentation: two months of statements, with any large deposits explained.

Gift funds.

This is the big one. The entire 3.5% can be a gift, with no requirement that you contribute anything from your own money. Acceptable donors include:
  • Family members, related by blood, marriage, or adoption
  • A close friend with a documented, clearly defined relationship
  • Your employer or labor union
  • A charitable organization
  • A government agency providing housing assistance
Not acceptable: the seller, the real estate agent, the builder, or anyone else with a financial interest in the sale.
The gift requires a letter stating the amount, the donor’s relationship to you, the property address, and a clear statement that it is a gift and not a loan. The transfer has to be documented from the donor’s account to yours or directly to closing. Cash gifts don’t work because there’s no paper trail.
The gift requires a letter stating the amount, the donor’s relationship to you, the property address, and a clear statement that it is a gift and not a loan. The transfer has to be documented from the donor’s account to yours or directly to closing. Cash gifts don’t work because there’s no paper trail.
Gift funds do not need to be seasoned. They can arrive the week before closing.

Down payment assistance programs

State and local programs, often structured as grants or second liens, that pair with FHA loans. Colorado’s CHFA and Texas’s TDHCA and TSAHC are the main ones in the states I work in. Eligibility depends on income, purchase price, and sometimes first-time buyer status.

Retirement accounts

A withdrawal or loan from a 401(k) or IRA is acceptable, with documentation. A 401(k) loan counts as a debt in your DTI.

Sale of an asset

Selling a car, for example. Needs a bill of sale and proof of deposit.
01

Seller concessions: the other lever

Separate from the down payment, FHA allows the seller to contribute up to 6% of the sale price toward the buyer’s closing costs, prepaid items, and the upfront mortgage insurance premium.
That’s more generous than most conventional programs. On a $400,000 purchase, that’s up to $24,000 the seller can cover. In practice sellers rarely agree to the full 6%, but two or three percent is common in a balanced market.
What seller concessions cannot cover: the down payment itself. The 3.5% has to come from you or one of the sources above.
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Putting it together

Here’s how a buyer with limited savings can structure an FHA purchase:
  • Down payment: gift from a parent, or a down payment assistance grant
  • Closing costs: seller concession negotiated into the offer
  • Upfront mortgage insurance premium: financed into the loan
  • Buyer’s cash at closing: sometimes close to nothing
That’s not a loophole. It’s how the program is designed to work. FHA exists to get people into homes who have the income to make payments but haven’t had the time or circumstances to save a large down payment.
03

Should you put more than 3.5% down?

Sometimes. Two reasons to consider it:
  • Mortgage insurance duration. With less than 10% down, FHA’s annual mortgage insurance lasts the life of the loan. With 10% or more down, it ends after 11 years. For a buyer who plans to keep the loan a long time, that’s a meaningful difference.
  • Lower monthly payment. Obvious, but worth stating.
Reasons not to: if putting 10% down leaves you with no reserves, you’ve made the file weaker, not stronger. Underwriters like seeing money left over after closing. A 3.5% down payment with three months of reserves is a better file than 10% down with nothing in the bank.

Frequently asked questions

Not from an unsecured source. A personal loan for the down payment is not acceptable. A 401(k) loan is, because it's secured by your own asset.

No. Employers, close friends with documented relationships, charities, and government agencies all qualify. Family is just the most common.

No. Seller contributions are limited to closing costs and prepaids, capped at 6% of the sale price.

Not for a one or two unit property. For three and four unit properties, three months of reserves are required. Reserves help any file, though.

Buying outside Colorado or Texas? Barrett Financial Group originates in 48 states. Get in touch and I’ll connect you with a licensed originator in yours.
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