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T.D. Landrum

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FHA Loan Down Payment Requirements

March 26th, 2021



It's a big roadblock on the path to homeownership: the down payment. FHA loans offer low down payments and accounted for about 13% of all home loans in 2016, according to government data.

That may not seem like a huge percentage, but about 80% of FHA loans are made to first-time home buyers. That meant 730,000 new homeowners last year, according to an analysis by Genworth, a mortgage insurance provider.

Here's how much an FHA down payment will cost you -- and how you can get an FHA-backed low-down-payment mortgage.

How much is an FHA loan down payment?

An FHA loan can mean a down payment as low as 3.5%. On a $300,000 home, that would be $10,500. Compare that with the traditional 20% down payment that most lenders prefer, which would come out to $60,000. Big difference. And that's before closing costs and other buying-a-home expenses.

To get the minimum FHA down payment deal, you'll need a credit score of 580 or better. If you fall in the FICO range of 500 to 579, you will be required to put 10% down. To see where you stand, get your credit score and run your numbers on an FHA mortgage payment calculator.

But FHA loans come with a price tag: mortgage insurance premiums. You'll pay an upfront fee and ongoing monthly premiums.

Beyond FHA: Low-down-payment alternatives

Many banks, credit unions and online mortgage lenders offer FHA loans. But for borrowers with higher credit scores, FHA loans aren't the only low-down-payment mortgages around. Fannie Mae- and Freddie Mac-backed mortgages -- which are considered "conforming" loans -- are popular with lenders because they don't carry the regulations and restrictions of FHA-backed mortgages.

"While FHA loans still serve their purpose for some buyers, folks with [credit] scores above 720 usually find conforming loans a better option, especially now, since they can put as little as 3% to 5% down," Ted Rood, a senior loan officer in St. Louis with 15 years of experience, tells NerdWallet.

You will also pay for mortgage insurance on these conforming-loan -- also called conventional mortgage -- programs that let you borrow up to 97% of the home's value, he says. But with a Fannie- or Freddie-backed loan, you may be able to cancel it after you reach 20% equity in your home. By contrast, FHA mortgage insurance is most often charged for the life of the loan.

FHA loans are still the most sought-out option for first-time home buyers, particularly for buyers with credit that is less than perfect. But if you have good credit, Fannie- and Freddie-backed loans open up new possibilities for qualified borrowers who just can't quite get over that 20% down hurdle.



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Disclaimer : The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the Houston Association of REALTORS®

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