FHA Loan Down Payments

It's a big pothole on the road to homeownership: the down payment. But Federal Housing Administration loans allow down payments as small as 3.5%.

On a $300,000 home, a 3.5% down payment would cost $10,500. Compare that with the traditional 20% down payment, which would come out to $60,000 on the same home. Big difference. And that’s before closing costs and other buying-a-home expenses.

To get the minimum 3.5% FHA down payment deal, you’ll need a credit score of 580 or higher. If you fall in the range of 500 to 579, you will be required to put at least 10% down.

But the low down payments on FHA loans come at a cost: mortgage insurance premiums. You’ll pay an upfront fee and ongoing monthly premiums that can last the life of the loan. The upfront mortgage insurance premium is one of the closing costs you'll pay with an FHA loan, though it can be rolled into the total amount of the loan.

» MORE: FHA loan requirements

Other low-down-payment loans

Many banks, credit unions and online mortgage lenders offer FHA loans. But FHA loans aren’t the only low-down-payment mortgages around. Some Fannie Mae- and Freddie Mac-backed mortgages — which are called “conforming” loans — allow down payments as low as 3% for qualified borrowers. These loans require borrowers to pay for private mortgage insurance, just as FHA loans require borrowers to pay government mortgage insurance.

» MORE: FHA vs. conventional loans