How FHA Down Payment Assistance Works, Nationally and State By State

It can be daunting to know how and when to leap into homeownership — especially if you don’t have substantial savings for a down payment. Worried you simply won’t be able to afford it?

If this sounds like you, you might have heard about special programs that help you get your foot in the homeownership door. You just need to learn more about what they are — and where you can find them.

If you’re a first-time homebuyer, you might qualify for down payment assistance provided through a government agency or private organization.

Here, we’ll walk you through one of the best-known and most widely utilized tools that can help get you those keys: the FHA loan. Read on for more about these loans, the down payment assistance programs associated with them, and some different down payment assistance programs to consider when you buy your first home.

What’s an FHA loan?

Let’s start with the basics: FHA loans are loans that are backed by the US Department of Housing and Urban Development’s Federal Housing Administration (FHA). They must be issued by an FHA-approved lender — and there are many of these out there.

If a buyer with an FHA loan stops making payments on the home loan, and the house goes into foreclosure, the FHA will take responsibility, thus protecting some of the lender’s loss. This extra degree of protection encourages lenders to offer loans to borrowers with lower credit scores and lower down payment amounts. (Plus, with FHA, your entire down payment can be a gift from an eligible source like family.) And when lending standards are less stringent, more buyers get the opportunity to enter into homeownership.

When it comes to the actual FHA loan, “Typically, there are stricter standards for the house itself,” adds top-selling agent Rodney Moser, who sells properties more than 40% quicker than the average Salt Lake City agent. “So they may go through a more stringent appraisal review on the property to make sure that there aren’t major maintenance issues that would have to be taken care of.”

But jumping through hoops like these can be well worth it for certain buyers seeking to obtain FHA loans. Where a conventional production might require a 620 credit score, FHA only requires 580. The actual minimum credit score allowed can depend on your lender, so it makes sense to shop around.

With an FHA loan, you will pay a 1.75% upfront mortgage insurance premium (MIP) on your loan. And if you don’t put at least 10% down, you’ll pay MIP over the entire life of the loan, even after you hit 20% equity. These are good reasons to consider down payment assistance.