Down payment amounts depend on the loan type and your financial situation

There is no single down payment amount that works for everyone. The money you put down when you buy a house can range from 0% to 20% of the purchase price, depending on which loan program you use, your credit score, and what the lender requires. A conventional loan typically asks for 5% to 20%. An FHA loan (backed by the Federal Housing Administration) often allows 3.5% down. VA loans (for military members and veterans) and USDA loans (for rural properties) can require 0% down.

The down payment is separate from closing costs, which are the fees you pay to the lender, title company, and other parties at closing. Closing costs usually run 2% to 5% of the purchase price and are not the same as your down payment, though some programs let you roll them into your loan.

Key Takeaways

  • Conventional loans typically require 5% to 20% down, while FHA loans allow as little as 3.5% down on the purchase price.
  • VA loans and USDA loans can require 0% down if you meet the program's other requirements.
  • A smaller down payment means a larger loan amount and higher monthly payments, plus you may have to pay mortgage insurance.
  • Your credit score, debt-to-income ratio, and savings history affect whether a lender will accept a lower down payment.
  • Down payment and closing costs are separate expenses; you need cash for both.

Conventional loans and the 20% standard

A conventional loan is a mortgage that is not backed by a government agency. Most conventional loans ask for a down payment between 5% and 20%. The 20% figure is common because it lets you avoid paying private mortgage insurance (PMI), which protects the lender if you stop paying.

If you put down less than 20%, you will pay PMI on top of your regular mortgage payment. PMI typically costs 0.5% to 1.5% of your loan amount per year, split into monthly payments. On a $300,000 loan, that could add $125 to $375 per month. PMI stays on your loan until you have paid down the balance to 80% of the home's original purchase price, or until you refinance.

Lenders set their own rules about minimum down payments. Some will accept 3% down on a conventional loan if your credit score is 620 or higher and your debt-to-income ratio is low enough. Others require 5% or 10%. You will need to contact lenders directly to learn what they offer.

FHA loans for buyers with lower savings or credit scores

An FHA loan is insured by the Federal Housing Administration and is designed for buyers who cannot put down 20%. The minimum down payment is 3.5% of the purchase price. If your credit score is below 580, some lenders will still work with you, though they may require 10% down instead.

FHA loans require mortgage insurance, and it works differently than PMI on a conventional loan. You pay an upfront mortgage insurance premium (UFMIP) at closing, which is usually 1.75% of the loan amount and can be rolled into your loan. You also pay an annual mortgage insurance premium (MIP) that stays on the loan for the life of the loan if you put down less than 10%, or for at least 11 years if you put down 10% or more.

FHA loans have limits on how much you can borrow, and the limit varies by county. The limit for 2024 ranges from about $498,000 in lower-cost areas to over $1.1 million in high-cost areas. Check your county's limit on the HUD website before you start shopping.

VA loans and USDA loans with zero down

If you are a military member, veteran, or surviving spouse, you may be able to get a VA loan with 0% down. VA loans are may provide by the Department of Veterans Affairs. You do not pay PMI, but you do pay a funding fee that is usually 1.4% to 3.6% of the loan amount (depending on your military status and whether you have used a VA loan before). The funding fee can be rolled into your loan.

USDA loans are for buyers in rural areas and are backed by the U.S. Department of Agriculture. They also allow 0% down and do not require PMI. You pay a may provide fee upfront (1% of the loan amount) and an annual fee (0.35% of the loan amount), both of which can be included in your loan.

Both programs have income limits and property location requirements. VA loans have no income cap, but USDA loans do. A USDA property must be in a designated rural area, which you can check on the USDA website. Not all homes in rural counties may have access to; some are too close to cities.

How down payment size affects your monthly payment and total cost

A smaller down payment means you borrow more money, which raises your monthly mortgage payment. On a $400,000 home at 7% interest over 30 years, putting 3% down ($12,000) instead of 20% ($80,000) increases your monthly payment by roughly $400 before taxes and insurance. Add PMI, and the difference grows to $500 or more per month.

Over 30 years, that extra $500 per month costs you $180,000 more in total payments. However, if you cannot save $80,000 and you need to buy a home now, a smaller down payment may still make sense — especially if home prices are rising in your area or if you are paying rent that is higher than a mortgage payment would be.

The trade-off is worth calculating. Use a mortgage calculator to compare scenarios: 3% down versus 5% versus 10% versus 20%. Enter the same interest rate and loan term for each, and see how the monthly payment and total interest change. This shows you the real cost of borrowing more.

What lenders look at when you have a small down payment

When you put down less than 10%, lenders scrutinize your finances more closely. They look at your credit score, which should be at least 620 for most conventional loans and FHA loans. They also check your debt-to-income ratio (DTI), which is the total of all your monthly debt payments divided by your gross monthly income. Most lenders want your DTI to be 43% or lower, though some will go to 50% if your down payment is larger or your credit is strong.

Lenders also want to see that you have savings left over after closing. If you put down 3% and have no money in the bank, a lender may worry that you cannot handle an unexpected repair or a job loss. Many lenders require you to have 2 to 6 months of mortgage payments in savings after you close.

Your employment history and income stability matter too. If you changed jobs recently, the lender may ask for a letter from your new employer confirming your salary. If you are self-employed, you will need to provide tax returns and possibly profit-and-loss statements.

Down payment information programs and gifts

Some employers, nonprofits, and government agencies offer down payment information. These programs may give you a grant (money you do not have to repay) or a forgivable loan (a loan that disappears if you stay in the home for a certain number of years). The amount and terms vary widely by program and location.

You can also receive a down payment gift from a family member. Lenders allow this, but they require a gift letter stating that the money is a gift and not a loan. The gift letter must be signed by both you and the person giving the money. Some lenders limit how much of your down payment can be a gift; others allow 100% of it to be a gift.

If you are a first-time homebuyer, search your state's housing finance agency website for down payment information programs. You can also ask your real estate agent or lender whether they know of local programs. The National Council of State Housing Agencies maintains a directory of state programs.

Frequently Asked Questions

Can I use a credit card or personal loan for my down payment?

Most lenders will not allow it. They want to see that the down payment comes from your own savings or a gift. If you use a credit card or personal loan, the lender will see the new debt on your credit report and may deny your mortgage process or require a larger down payment. Ask your lender before you borrow money for a down payment.

What happens if I put down less than 3%?

Conventional loans rarely go below 3% down. FHA loans allow 3.5% as the minimum. If you have less than 3% saved, look into VA loans (if you may have access to), USDA loans (if the property is in a rural area), or down payment information programs in your state. Some lenders also offer special programs for first-time buyers with very small down payments, though these are less common.

Does my down payment affect my interest rate?

Yes, usually. A larger down payment often qualifies you for a lower interest rate because the lender's risk is lower. The difference might be 0.25% to 0.5%, which adds up over 30 years. Ask your lender for rate quotes at different down payment levels so you can see the full picture.

Can I borrow my down payment from my 401(k)?

You can take a loan from your 401(k) or withdraw money as a first-time homebuyer (up to $35,000 lifetime from a Roth IRA). However, this reduces your retirement savings and may have tax consequences. Talk to a tax professional or financial advisor before you do this, because the long-term cost to your retirement may be higher than the benefit of a larger down payment.

What if I want to put down more than 20%?

You can put down as much as you want. A larger down payment means a smaller loan, lower monthly payments, and no PMI. It also strengthens your offer in a competitive market. The trade-off is that you tie up more cash upfront, which you might need for emergencies or other goals. Run the numbers to see whether a larger down payment makes sense for your situation.