Can a Down Payment Be Included in an FHA Loan?

The FHA allows for a high loan-to-value and low down payment.

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The Federal Housing Administration is the main source of low down payment programs in the U.S. The agency was created to help moderate-income borrowers buy and refinance homes, and FHA-insured loans require a minimal down payment and offer flexible qualifying terms. The federal government insures loans made by approved lenders, reimbursing their losses in the event of borrower default. An FHA loan always require a down payment, although lenders allow you to cover the down payment in various ways.

Down Payment Amount

FHA loans require a minimum down payment of 3.5 percent as of 2013. The FHA changes the down payment requirement depending on its financial needs. The agency sets down payment guidelines, but lenders may also set more stringent criteria of their own. For example, the FHA allows borrowers with a credit score as low as 500 to qualify with a 10 percent down payment; however, most lenders require all borrowers have at least a 640 score, regardless of the down payment amount.


The down payment is a borrower's cash contribution to a purchase transaction. Borrowers are generally less likely to default on loans when they put their own money on the line and have equity in the home. For an FHA loan, the down payment equals 3.5 percent of the greater of the sale price or appraised value of the home; meaning an FHA borrower can finance up to 96.5 percent of a home's value. When the home's value is less than the sale price, the borrower can choose to make up the shortfall out of pocket to meet the FHA's 96.5 percent loan-to-value requirement. That means, effectively, that the borrower must increase his down payment or cancel the deal.

Down Payment Gifts

The FHA allows borrowers to receive monetary gifts from relatives to cover the full down payment. Gift donors must prove a family-like, long-standing relationship to the borrower, if not related by blood, marriage or law. The donor substantiates the gift amount and its source -- such as personal savings -- with a gift letter and account statement. The donor also must certify that the down payment funds are a gift which do not require repayment by the borrower. FHA-approved non-profits, charities and employers can also gift down payment funds.

Down Payment Assistance Programs

The FHA allows down payment contributions from third-party providers in the form of secondary financing. An entity other than the seller or financially interested party to the transaction may finance the down payment. The borrower must qualify under both FHA's and the down payment provider's guidelines. State or local government entities may provide secondary financing with or without a required monthly payment. The secondary loan may incur interest and result in a lien on the property to secure repayment when the borrower sells or refinances the FHA-insured loan.

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About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.

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