FHA Loan Explained: Down Payment Requirements

Borrowers with scores between 500 and 579 may still qualify but will be asked to provide a 10% down payment.

Those with credit scores below 500 generally find themselves ineligible for FHA loans, although exceptions can occur based on individual case evaluations.

Busting the Zero-Down Myth

While it's common to hear about zero-down FHA loans, it's essential to understand that these loans are subject to specific conditions. Borrowers will still need to invest their own funds for a down payment.

MIP Costs

Monthly mortgage insurance premiums (MIP) are an essential aspect of FHA loans. Upfront MIP is typically 1.75% of the loan amount.

Qualification Rules

To qualify for an FHA loan, borrowers must use the property as their primary residence, demonstrate a steady income source, and meet typical debt-to-income (DTI) guidance.

Additionally, FHA loans require that the borrower intends to occupy the property within 60 days and will maintain occupancy for at least one year.

FHA appraisals are designed to ensure the property meets specific safety and livability standards.

Real Buyer Examples

• $250,000 Property:
• 3.5% Down: $8,750 | Loan Amount: $241,250 | Upfront MIP (1.75% of loan): $4,221.88
• 10% Down: $25,000 | Loan Amount: $225,000 | Upfront MIP (1.75% of loan): $3,937.50
• $300,000 Property:
• 3.5% Down: $10,500 | Loan Amount: $289,500 | Upfront MIP (1.75% of loan): $5,066.25
• 10% Down: $30,000 | Loan Amount: $270,000 | Upfront MIP (1.75% of loan): $4,725.00
• $400,000 Property:
• 3.5% Down: $14,000 | Loan Amount: $386,000 | Upfront MIP (1.75% of loan): $6,755.00
• 10% Down: $40,000 | Loan Amount: $360,000 | Upfront MIP (1.75% of loan): $6,300.00

Decision Table

	Minimum Down Payment	Eligibility Status	Note
580 and Above	3.5%	Eligible	Maximum financing applies only at 580 and above.
500 to 579	10%	Eligible	-
Below 500	-	Generally Ineligible	-

What properties are eligible for FHA loans?

FHA loans can be used to purchase single-family homes, condos, townhomes, and even manufactured homes.

Can I refinance my existing mortgage with an FHA loan?

Yes. Homeowners can refinance their current mortgages using FHA Streamline Refinances, which offer faster approval times and reduced paperwork.

What is the difference between a 3.5% down payment and a 10% down payment for an FHA loan?

The main difference lies in the amount of money you need to bring upfront for your down payment. A 3.5% down payment requires less cash, making it more accessible for first-time homebuyers. On the other hand, a 10% down payment reduces the amount you need to borrow, potentially lowering your monthly mortgage payments and overall interest costs.

Can I qualify for an FHA loan with a credit score below 580?

Although it's possible to qualify for an FHA loan with a score below 580, doing so typically requires at least a 10% down payment. Keep in mind that meeting this requirement may still depend on other factors such as your debt-to-income ratio and the results of the FHA appraisal.

Can I get an FHA loan without any out-of-pocket costs using Down Payment Assistance (DPA)?

It's possible to receive assistance with your down payment through programs like DPA. However, it's important to note that this still represents a borrower investment, as the funds are intended to be repaid at some point. The exact terms of the program will vary depending on the specific assistance offered in your area.

How much is the upfront Mortgage Insurance Premium (MIP) for an FHA loan?

The upfront MIP for an FHA loan is typically 1.75% of the loan amount. This fee is usually added to the total loan amount and financed over the life of the mortgage.

When does the annual Mortgage Insurance Premium (MIP) end for an FHA loan?

The annual MIP for most FHA loans remains in place for the life of the mortgage, unless you refinance into a conventional loan or reach 11 years of payment history on a fixed-rate loan with a term longer than 15 years. In certain circumstances, such as when you have a low balance on an adjustable-rate mortgage, MIP may be cancelled earlier.