FHA Loan Closing Costs and Down Payment: What You'll Actually Pay

FHA loans are the most popular mortgage option for first-time homebuyers in the United States, and for good reason — the down payment can be as low as 3.5% and the credit requirements are more forgiving than conventional loans. But "low down payment" does not mean "low upfront cost." FHA loans come with their own cost structure, and many first-time buyers are shocked to discover that their total cash-to-close is significantly higher than 3.5%.

This guide breaks down exactly what you'll pay — down payment, closing costs, mortgage insurance, and all the fees in between — so you can budget accurately before you start house hunting.

FHA Down Payment Requirements

The FHA minimum down payment depends on your credit score:

For most first-time buyers with decent credit, the 3.5% down payment is the entry point. On a $250,000 home, that's $8,750. On a $350,000 home, that's $12,250.

Important caveat: The 580 threshold is the FHA's minimum, but individual lenders often impose their own overlays. Many lenders require a 620 or even 640 minimum credit score for FHA loans, even though the FHA itself allows 580. Shop multiple lenders if your score is in the 580–619 range — you may find one willing to work with you.

FHA Closing Costs: What's Included

FHA closing costs are similar to conventional loan closing costs and typically run 2%–5% of the loan amount. Here's what you're looking at on a typical purchase:

Lender fees:

• Loan origination fee: 0.5%–1% of the loan amount (sometimes listed as "lender points")
• Underwriting fee: $400–$900
• Application fee: $0–$400 (many lenders have eliminated this)
• Credit report fee: $25–$50

Third-party fees:

• Appraisal: $400–$700 (FHA appraisals have specific requirements and often cost more than conventional)
• Title insurance (lender's policy): $200–$600
• Title insurance (owner's policy): $400–$1,000
• Title search and exam: $150–$400
• Settlement/closing fee: $300–$700
• Recording fees: $25–$250 (varies by county)
• Survey: $0–$500 (not always required)

Government fees:

• FHA Upfront Mortgage Insurance Premium (UFMIP): 1.75% of the loan amount (more on this below)
• Transfer taxes: Varies by state (0%–2%)

Prepaids (paid at closing but not technically "fees"):

• Homeowner's insurance first year: $800–$2,000
• Prepaid interest (per diem from close date to end of month): Varies
• Escrow reserves for taxes: 2–6 months
• Escrow reserves for insurance: 2–3 months

Total estimate for a $250,000 FHA purchase: Closing costs alone (excluding down payment) typically run $7,000–$14,000, not counting the UFMIP if it's rolled into the loan.

The FHA Upfront Mortgage Insurance Premium (UFMIP)

This is the fee that catches most FHA buyers off guard. The FHA charges a one-time Upfront Mortgage Insurance Premium equal to 1.75% of the base loan amount. This is separate from your down payment and from your annual mortgage insurance.

On a $241,250 loan (a $250,000 home with 3.5% down):

• UFMIP: $241,250 × 1.75% = $4,222

The good news: You don't have to pay this in cash at closing. Almost all borrowers choose to roll the UFMIP into the loan balance, which increases your loan amount slightly but keeps cash in your pocket at closing. In the example above, your actual loan amount becomes $241,250 + $4,222 = $245,472.

If you do want to pay it in cash at closing, you can — but it's rarely worth it given that FHA loans are designed for borrowers conserving cash.

Annual FHA Mortgage Insurance Premium (MIP)

Beyond the upfront fee, FHA loans also carry an annual Mortgage Insurance Premium charged monthly. As of 2024–2025, the annual MIP for most FHA loans is 0.55% of the loan balance per year (paid monthly).

On a $245,472 loan: $245,472 × 0.55% / 12 = approximately $113/month

Unlike conventional PMI, which cancels automatically when you reach 20% equity, FHA annual MIP behaves differently:

• If your down payment was less than 10%: MIP remains for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity.
• If your down payment was 10% or more: MIP cancels after 11 years.

This is a significant long-term cost consideration. Over 10 years, that $113/month adds up to roughly $13,600 in mortgage insurance payments, even as your balance decreases. Some buyers with 620+ credit scores choose a conventional loan with 3% down instead, specifically to avoid lifetime MIP — worth running the comparison with your loan officer.

Your Total Cash-to-Close on an FHA Loan

Let's put together a real-world example for a $250,000 purchase with 3.5% down:

Note: If you roll the UFMIP into the loan (which most people do), cash-to-close drops to approximately $16,300.

This is why the common advice "you only need 3.5% for an FHA loan" is misleading. You need 3.5% for the down payment, but your total out-of-pocket is more like 6–9% of the purchase price when you account for all closing costs and prepaids.

How to Reduce Your FHA Closing Costs

Seller concessions: FHA guidelines allow sellers to contribute up to 6% of the purchase price toward the buyer's closing costs. In a buyer's market, it's often worth asking for $5,000–$10,000 in seller credits. This doesn't lower the purchase price, but it reduces your cash-to-close significantly.

Lender credits: You can accept a slightly higher interest rate in exchange for lender credits that cover closing costs. This is called a "no-closing-cost loan" structure. You'll pay a higher rate over time, but it reduces upfront cash requirements.

Gift funds: FHA allows gift funds from family members to cover the down payment and closing costs. The donor must provide a gift letter confirming no repayment is expected.

Down payment assistance programs: Many states have programs specifically for FHA borrowers that provide grants or deferred loans to cover down payment and closing costs. Your state's housing finance agency website is the starting point for finding these.

Negotiate lender fees: Loan origination fees and some third-party fees are negotiable. Get Loan Estimates from at least 3 lenders and compare not just the interest rate but the total closing cost amount on page 2 of each estimate.

FHA vs. Conventional: Which Has Lower Closing Costs?

As a rule, conventional loans don't have the UFMIP, which gives them a lower upfront cost if you're paying closing costs in cash. However:

• Conventional loans with less than 20% down require PMI, though it's cancelable once you hit 20% equity
• Conventional loans have stricter credit requirements
• For buyers with lower credit scores, FHA rates are often better even accounting for MIP

The right comparison is to run the total cost of ownership over your expected time in the home — not just the closing day costs. A good loan officer will do this math with you.

Prepare Your Full Budget Before You Start Looking

The biggest mistake FHA buyers make is not knowing their true cash-to-close number before they get emotionally attached to a house. By the time they're under contract, they've already mentally moved in — and then the Loan Estimate arrives with numbers that don't fit the budget.

Know your number first. Our Complete First-Time Homebuyer Checklist includes a Closing Cost Estimator that maps out every line item for FHA and conventional loans, plus a Cash-to-Close worksheet so you can stress-test your budget before you fall in love with a house.

Download the checklist for $14 — it's the same price as one trip to a coffee shop and will save you from one of the most common and expensive first-time buyer mistakes.