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FHA Loan Down Payment Requirements — How Much Do You Really Need?

The low down payment is one of the most well-known features of an FHA loan — and one of the most misunderstood. Here’s everything you need to know about how it works, where the money can come from, and what to expect at closing.

The Minimum Down Payment

With a credit score of 580 or higher, the minimum down payment on an FHA loan is 3.5% of the purchase price or appraised value, whichever is lower. With a credit score between 500 and 579, the minimum increases to 10%.

Example: Buying a home in California for $600,000 with a 620 credit score? 3.5% down = $21,000.

Where Your Down Payment Can Come From

  • Your own savings or bank accounts — most common
  • Gift funds from a family member, employer, labor union, close friend, or HUD-approved non-profit — with a proper gift letter stating no repayment is required
  • Down Payment Assistance (DPA) programs — several state and national programs can cover your entire 3.5% requirement
  • Sale of assets (stocks, bonds, personal property)
  • Proceeds from the sale of another property

Gift Funds — The Full Picture

Gift funds are a legitimate and commonly used source for the FHA down payment. Key rules:

  • The gift must come from an acceptable donor — family member, employer, labor union, close friend, or approved charitable organization
  • A signed gift letter is required specifying the dollar amount, transfer date, and a statement that no repayment is expected
  • Cash on hand is not acceptable — gift funds must flow through a bank account with documented transfers
  • Family members can also provide a gift of equity when selling a property to a relative

Can the Seller Pay Your Down Payment?

No — sellers cannot contribute toward your down payment. However, sellers can contribute up to 6% of the purchase price toward closing costs and prepaid items, which frees up more of your own funds.

Down Payment Assistance Programs

Multiple programs exist that can provide the 3.5% FHA down payment as a grant or secondary loan. CalHFA’s MyHome program offers up to 3.5% deferred with no monthly payment. National programs can provide up to 5%. These programs have income limits — reach out and we’ll match you with what’s available in your county.

Budget for the whole cash-to-close figure

The down payment is only part of what you bring. California buyers typically pay roughly 2% to 5% of the purchase price in closing costs. Illustrative example, not a quote: on a $700,000 purchase, 3.5% down is $24,500. Closing costs at 2% to 5% would be $14,000 to $35,000, so the total cash need before any credits is about $38,500 to $59,500. A seller credit, up to 6% of the price or $42,000 here, can only be applied to closing costs and prepaid items, never the down payment.

Documenting where the money came from

  • Provide recent bank statements for every account used. Underwriters look for large deposits that are not payroll and will ask for a source.
  • Do not deposit cash. Move funds by traceable transfer well before you apply.
  • For gift funds, collect the signed gift letter and proof of the transfer from the donor’s account.
  • Do not borrow the down payment on a credit card or personal loan; new debt also raises your DTI.
  • Retirement account funds can be a source, but withdrawals may have tax consequences, so consult a tax professional.

Common mistakes

Buyers often shuffle money between accounts right before applying, wait to arrange a gift until after the contract is signed, or forget that the 3.5% is calculated on the lower of price or appraised value. If the appraisal comes in under the price, the difference has to be covered by negotiation, a larger down payment or another plan.

Frequently asked questions

What if the home appraises below the contract price?

FHA bases the down payment on the lower of price or appraised value, so the loan amount drops with the appraisal. You can ask the seller to reduce the price, bring more cash, or in some cases walk away under your contract terms.

Can I use gift funds and assistance together?

Sometimes. Programs set their own rules on how funds may be combined, so tell us about every source early and we will confirm what works together.

Do I need more than 3.5% to be safe?

The minimum is enough to qualify, but cash left after closing matters for comfort. A reserve for repairs and moving costs is worth building even if the program does not require it.

Related guides

Practical Takeaways

  • 3.5% down is the standard with a 580+ credit score
  • Gift funds can cover 100% of your down payment
  • DPA programs can eliminate your out-of-pocket down payment entirely
  • Sellers can pay closing costs (up to 6%) but not your down payment
  • Plan for 2% to 5% of the price in closing costs on top of the down payment.
  • Seller credits cover closing costs and prepaids, not the down payment.
  • Transfer gift and savings funds well before applying and keep the paper trail.