Editor’s note: This article was updated in 2021 to include the latest down payment rules and requirements for FHA loans, based on current HUD guidelines. There have been no significant program changes over the past couple of years. The 3.5% rule remains in effect, as explained below.
Here are the minimum FHA down payment requirements at a glance: Borrowers who use an FHA-insured mortgage loan to buy a house in 2021 must put down at least 3.5% of the purchase price or the appraised value of the home (whichever amount is less). That is the minimum requirement in 2021, according to HUD Handbook 4000.1.
Additionally, borrowers must have a credit score of 580 or higher to qualify for the 3.5% down payment option mentioned above.
Minimum Down Payment Amount for FHA Loans: 3.5%
The Federal Housing Administration mortgage insurance program is managed by the Department of Housing and Urban Development (HUD). So it is HUD that establishes all of the guidelines for this program, including the FHA down payment requirements.
The minimum percentage or amount required for an FHA loan down payment is outlined in HUD handbook 4000.1, also known as the Single Family Housing Policy Handbook. This handbook was issued a couple of years ago and replaces / supersedes many other guidelines. It is the official source for FHA down payment requirements, as well as other criteria relating to this particular mortgage program.
The HUD handbook refers to the down payment as the “Borrower’s Minimum Required Investment (MRI).” Here’s what it says about the MRI:
“In order for FHA to insure this maximum mortgage amount, the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.”
Later, the handbook defines the “adjusted value” as such:
“For purchase transactions, the Adjusted Value is the lesser of: purchase price less any inducements to purchase; or the Property Value.”
Translation: Home buyers who wish to use an FHA loan must make a down payment of at least 3.5%. That’s the minimum requirement for this program as of 2021.
Maximum Loan-to-Value (LTV) Ratio Is 96.5%
In mortgage lingo, the “loan-to-value” (LTV) ratio is simply a percentage that shows how much of the purchase price is being covered by the mortgage loan. For example, if you were to make a down payment of 10% of the purchase price, and you borrowed the rest, your initial LTV would be 90%.
The HUD handbook states the following, in regards to the maximum loan-to-value:
“For [FHA] purchase transactions, the maximum LTV is 96.5 percent of the Adjusted Value.”
You can think of the loan-to-value ratio as the inverse of the down payment. Borrowers must make a minimum down payment of 3.5% when using this program, which limits them to an LTV of 96.5%.
Credit Score Needed When Putting 3.5% Down
The handbook goes on to state that borrowers need a “minimum decision credit score” of 580 or higher to qualify for the 3.5% down payment amount on an FHA loan.
The absolute minimum credit score for this program is 500. But borrowers with credit scores between 500 and 579 would need to put down at least 10% for FHA. And that removes the primary benefit of using this program in first place.
As a result of this two-tiered credit score and down payment requirement, most of the home buyers who use the FHA loan to buy a house have credit scores of 580 or higher.
- If a person’s “Minimum Decision Credit Score” is 580 or higher, then he or she is eligible for maximum financing up to an LTV of 96.5% — and a down payment of 3.5%.
- If the borrower’s credit score falls between 500 and 579, then he or she is limited to a maximum LTV of 90% — which means a down payment of 10%.
The Funds Can Be Gifted from a Third Party
Here’s some good news relating to FHA down payment percentages and amounts. Current (2021) Federal Housing Administration guidelines allow borrowers to receive funds donated from family members, close friends, or other approved sources. This is referred to as a down payment gift, and we have covered it thoroughly in this article.
This means that the minimum required investment does not necessarily have to come out of your own pocket. It can be gifted to you from an approved source, which can greatly reduce your upfront out-of-pocket expense. But there must not be any expectation of repayment.
Note: According to FHA guidelines, the home seller cannot contribute money to the buyer’s minimum required down payment. Sellers (and real estate agents, builders, etc.) are considered “interested parties.” Funds provided by interested parties “may not be used for the Borrower’s MRI” or minimum required investment, according to HUD Handbook 4000.1.
Let’s recap some key points:
- The minimum down payment percentage amount for an FHA-insured home loan is 3.5% of the purchase price or appraised value. That is the current requirement for 2021.
- In order to take advantage of this low down payment amount, FHA borrowers are required to have a decision credit score of 580 or higher. Borrowers with scores between 500 and 579 must put down at least 10% to qualify for an FHA-backed mortgage loan.
- HUD allows for borrowers to receive funds donated by approved third parties, such as family members and close friends. These donations / gifts can create an easier path to homeownership, by reducing the financial hurdle associated with a mortgage down payment.
- If a borrower receives funds from a third-party donor, he or she must obtain a letter from the donor stating that they do not expect any form of repayment.
- Additional rules and requirements relating to FHA down payments in 2021 can be found in HUD handbook 4000.1, also known as the Single-Family Housing Policy Handbook. You can find it on our website and also on the Department of Housing and Urban Development website.
Frequently Asked Questions About FHA Down Payments
Here are some of the most frequently asked questions we receive relating to the minimum down payment requirement for FHA loans, and related topics.
What is the absolute lowest amount I can put down?
As stated above, the absolute minimum down payment requirement for this particular program is 3.5% of the purchase price or the appraised value of home, whichever is less.
What if I can’t come up with the 3.5 percent amount that’s required?
Borrowers who cannot come up with the 3.5% down payment that’s required for FHA purchase loans basically have two options. They can find some other mortgage program that offers a lower investment requirement, or they could obtain some or all of their down-payment funds from a third-party source. HUD allows gifts from housing agencies, nonprofits, family members, and even close friends with a “documented interest” in the borrower. (Note: There are other mortgage options for home buyers with limited funds.)
Is it possible to get an FHA loan with no down payment?
No, at this time the Federal Housing Administration does not offer any zero-down mortgage programs. At a minimum, borrowers who use an FHA loan to buy a house must make a minimum investment of 3.5%, which caps the LTV ratio at 96.5%.
Will the minimum required investment go up in the future?
At this time, we have no indication that the Department of Housing and Urban Development is planning to increase the minimum down payment amount for FHA loans in 2021 or beyond. Typically, a change like that would be preceded by a considerable amount of discussion, since the Federal Housing Administration is congressionally regulated. We have heard no such discussion, and therefore do not expect FHA to increase their minimum down payment percentage amount anytime soon. If that does happen, this entire website will be updated to reflect the change.
Are there grants available to help me cover the FHA down payment?
Current guidelines allow borrowers to receive down payment help in the form of donations and grants. There are many grants available to help home buyers overcome the hurdle of a down payment expense. Many of these programs are operated at the local level, by city, county and/or state housing agencies. Our advice is to research this locally by doing a Google search for “down payment assistance” followed by your city, county and state (in separate searches).
Learn more: This article explains the minimum FHA down payment requirements for borrowers who wish to purchase a home through this program. We have included a number of hyperlinks throughout this article that lead to related information. In addition, you will find many more articles and tutorials in our FHA research library.