The FHA is a government loan. The minimum down payment is only 3.5% of the property’s purchase price.
For example, if a homebuyer wants to purchase a home priced at $250,000, the required minimum down payment would be $8,750 (calculated as $250,000 × 3.5%).
However, there is one key exception to this rule:
- While FHA loans are available to borrowers with credit scores as low as 500, anyone with a credit score below 580 must make a minimum 10% down payment instead of 3.5%.
FHA loans are popular because of their more flexible underwriting guidelines compared to conventional loans. They are especially helpful for borrowers who may have:
- Lower credit scores
- Limited savings for a down payment
- Higher debt-to-income (DTI) ratios—FHA typically allows up to 31% for housing expenses and 43% for total monthly debt.
Down Payment & Closing Cost Sources (FHA Loans)
When applying for FHA financing, borrowers can cover their down payment and closing costs using a variety of sources, including:
- Personal funds (checking, savings, retirement accounts, etc.)
- Gift funds from family or eligible donors
- Seller concessions (up to allowable limits; see below)
- Grants from corporations, nonprofits, or community organizations
- Loans from employers, community programs, or corporations (as long as the borrower can show the ability to repay)
- Closing cost assistance programs offered by local or state housing agencies
🔁 Seller Concessions (FHA-Specific Rules)
Seller concessions may be used to pay for:
- Loan discount points
- Origination fees
- Interest rate buydowns
- Closing costs (e.g., title, escrow, prepaid taxes/insurance)
- Condominium fees
However, FHA limits seller concessions to a maximum of 6% of the home’s purchase price—regardless of the buyer’s down payment.
🔺 Important: Seller concessions cannot be applied to the borrower’s minimum required down payment.