Down payments typically range from 3% to 20% of the home's purchase price, depending on the loan type and your financial situation
A down payment is the cash you give the seller at closing — it comes out of your own pocket, not borrowed money. The rest of the purchase price is covered by a mortgage loan. A house that costs $300,000 with a 10% down payment means you pay $30,000 upfront and borrow $270,000.
The percentage you put down affects your monthly payment, how much interest you pay over time, and whether you have to buy mortgage insurance. A larger down payment lowers your monthly cost and removes the insurance requirement. A smaller down payment lets you buy sooner but costs more overall.
The minimum down payment depends on which loan program you use. Conventional loans (the most common type) usually require 3% to 5% down. Federal Housing Administration (FHA) loans allow 3.5% down. U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans can require 0% down if you meet their requirements.
Key Takeaways
- Down payment amounts range from 0% to 20% depending on the loan type, with conventional loans typically requiring 3% to 5%.
- Putting down less than 20% usually means paying mortgage insurance on top of your monthly payment, which adds hundreds of dollars per year.
- Your down payment comes from your own savings and is separate from closing costs, which are additional fees paid at closing.
- A larger down payment lowers your monthly mortgage payment and total interest paid, but a smaller down payment lets you buy sooner if you don't have much saved.
How down payment size affects your monthly payment and total cost
The larger your down payment, the smaller the loan amount you need to borrow. A smaller loan means a lower monthly payment. On a $300,000 house at current interest rates, the difference between a 3% down payment and a 20% down payment can be $200 to $300 per month.
Down payment size also affects how much you pay in interest over the life of the loan. A 30-year mortgage with a smaller down payment means you are borrowing more money for 30 years, so the total interest compounds. The difference between 3% down and 20% down on a $300,000 house can mean $50,000 to $80,000 more in total interest paid — though this varies based on current interest rates and your credit score.
If you put down less than 20%, you will pay private mortgage insurance (PMI). This is an insurance policy that protects the lender if you stop paying the mortgage. PMI typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment. On a $270,000 loan (10% down on a $300,000 house), PMI might add $100 to $300 per month. You can remove PMI once you have paid down the loan to 80% of the home's value, which usually takes 5 to 10 years.
Minimum down payments by loan type
Different loan programs have different minimum down payment requirements. Knowing which programs you might use helps you understand how much you actually need to save.
| Loan Type | Minimum Down Payment | Who Can Use It |
|---|---|---|
| Conventional loan | 3% to 5% | Most buyers with decent credit and income |
| FHA loan | 3.5% | First-time buyers and those with lower credit scores |
| VA loan | 0% | Active military, veterans, and some surviving spouses |
| USDA loan | 0% | Buyers in rural areas who meet income limits |
| Jumbo loan | 10% to 20% | Buyers purchasing homes above conventional loan limits |
Conventional loans are offered by banks and mortgage companies and are not backed by a government agency. They typically require a credit score of 620 or higher and a down payment of 3% to 5%. Some lenders offer 3% down programs specifically for first-time buyers.
FHA loans are insured by the Federal Housing Administration and allow a 3.5% down payment. They are designed for buyers with lower credit scores or less savings. FHA loans require mortgage insurance for the entire life of the loan, even after you reach 20% equity, which makes them more expensive over time than conventional loans.
VA loans and USDA loans both allow 0% down payments. VA loans are for military members and veterans. USDA loans are for buyers in designated rural areas who meet income requirements. Both programs have their own insurance or may provide fees, so the total cost varies.
Down payment versus closing costs — what you actually need to save
Your down payment is only part of the money you need at closing. Closing costs are separate fees for services like the home inspection, appraisal, title search, and loan origination. Closing costs typically range from 2% to 5% of the purchase price and are paid in addition to your down payment.
On a $300,000 house with a 5% down payment ($15,000) and 3% closing costs ($9,000), you need $24,000 in cash at closing. Some loan programs allow you to roll closing costs into the loan amount, but this increases your monthly payment and total interest. Some sellers will pay part of your closing costs as part of the negotiation, which reduces the cash you need to bring.
Before you start house hunting, calculate both numbers. If you have $20,000 saved, a 5% down payment on a $300,000 house ($15,000) leaves only $5,000 for closing costs, which is not enough. You would either need to save more, look at less expensive homes, or negotiate with the seller to cover some costs.
Strategies for saving a down payment
If you do not have 20% saved, you have options. Putting down 3% to 5% and paying mortgage insurance is a legitimate path that many buyers take. You can remove the insurance later by refinancing or by reaching 20% equity through regular payments.
Some employers offer down payment information programs as an employee benefit. Some nonprofits and government agencies offer down payment grants or low-interest loans for first-time buyers, though these vary by location and income. The National Housing Finance Agency and your state housing finance agency can point you toward local programs.
Family gifts are another common source. The lender will ask where the down payment money came from, and a gift from a relative is allowed. The person giving the gift usually has to sign a letter stating it is a gift and not a loan you have to repay.
Delaying your purchase to save more is also an option. If you can save an extra 5% to 10%, your monthly payment drops significantly and you avoid or reduce mortgage insurance. The trade-off is waiting longer to buy, during which time home prices and interest rates may change.
How your credit score and income affect down payment requirements
Lenders use your credit score and debt-to-income ratio to decide whether to approve your loan and what down payment they require. A higher credit score (740 and above) often qualifies you for a 3% down conventional loan. A lower credit score (620 to 680) may require 5% to 10% down or push you toward an FHA loan.
Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. Most lenders want this ratio to be 43% or lower. If you have high student loans, car payments, or credit card debt, your debt-to-income ratio is higher, and you may need a larger down payment to offset the risk in the lender's eyes.
Improving your credit score before you explore for a mortgage can lower the down payment requirement and the interest rate you receive. Paying down existing debt also improves your debt-to-income ratio. Both changes can save you tens of thousands of dollars over the life of the loan.
Frequently Asked Questions
Can I borrow money for my down payment?
Most lenders do not allow you to borrow the down payment from another lender or credit card. They want to see that the down payment comes from your own savings or a gift. However, some family loan programs and employer information programs are allowed if documented correctly. Ask your lender what sources they accept before you commit to a loan.
What happens if I put down less than 3%?
Conventional loans typically do not go below 3% down. If you have less than 3% saved, your options are FHA loans (3.5% down), VA loans (0% down if may be able to access), or USDA loans (0% down if may be able to access). Some lenders offer special first-time buyer programs with 1% to 2% down, but these are less common and usually require excellent credit.
Can I use my retirement account for a down payment?
You can withdraw from a traditional IRA or 401(k) for a first-time home purchase, but you will owe taxes and possibly penalties on the withdrawal. A first-time buyer can withdraw up to $10,000 from a traditional IRA without the early withdrawal penalty, but you still owe income tax on it. Consult a tax professional before withdrawing, as the tax bill can be substantial.
Does a larger down payment always mean a better deal?
A larger down payment lowers your monthly payment and total interest, but it also ties up cash you might need for emergencies or other investments. If you have high-interest debt like credit cards, paying that off first might save you more money than putting extra toward a down payment. Consider your full financial picture, not just the mortgage.
What if I want to put down more than 20%?
You can put down any amount above 20%, and it will lower your monthly payment further. However, putting down significantly more than 20% (like 40% or 50%) ties up a large amount of cash that could be invested elsewhere or kept as emergency savings. Most financial advisors suggest 20% as a reasonable target, not a minimum to exceed.