How Much Down Payment You Need for a Conventional Loan
What a conventional loan down payment is and how much lenders expect
A conventional loan is a mortgage that is not backed by the federal government—unlike FHA, VA, or USDA loans. The down payment is the cash you bring to closing; the lender finances the rest. Conventional loans typically require a down payment between 3% and 20% of the home's purchase price, though the exact amount depends on your credit score, income, and the lender's rules.
The lower your down payment, the more you borrow and the higher your monthly payment. You also pay private mortgage insurance (PMI) if you put down less than 20%. PMI protects the lender if you stop paying; it costs between 0.5% and 1.5% of your loan amount per year, added to your monthly mortgage bill. Once you build equity to 20% of the home's value, you can request to have PMI removed.
Lenders set their own minimums. Some accept 3% down; others require 5%, 10%, or more. Your credit score, debt-to-income ratio, and savings history all factor into what a lender will offer you and at what interest rate.
Key Takeaways
- Conventional loans require down payments ranging from 3% to 20%, with most lenders offering options at 5%, 10%, or 15%.
- Down payments below 20% trigger private mortgage insurance (PMI), which adds to your monthly payment until you reach 20% equity.
- Your credit score, debt-to-income ratio, and savings history determine both whether a lender will work with you and what down payment percentage they will accept.
- The down payment amount you choose affects your interest rate, monthly payment, and total cost over the life of the loan.
- You can request PMI removal once your loan balance drops to 80% of the original home value, which usually takes several years of payments.
How down payment percentage affects your monthly payment and total cost
The smaller your down payment, the larger your loan and the higher your monthly principal and interest payment. On a $300,000 home, a 3% down payment means you borrow $291,000; a 20% down payment means you borrow $240,000. That $51,000 difference translates to roughly $300 more per month in principal and interest alone, depending on interest rates and loan term.
PMI adds another layer. A borrower with 5% down on a $300,000 home typically pays $150 to $225 per month in PMI. That cost disappears once you reach 20% equity, but it can take 5 to 10 years of payments, depending on how fast home values rise in your area and how quickly you pay down the loan.
Over 30 years, the difference between a 3% and 20% down payment can easily exceed $100,000 in total interest and insurance costs. However, a smaller down payment lets you buy sooner and build equity in a home rather than renting. The trade-off depends on your financial situation and how long you plan to stay in the home.
Credit score and debt-to-income requirements that affect down payment options
Lenders use your credit score to decide what down payment they will accept. A score of 740 or higher typically qualifies you for the lowest down payment options (3% to 5%) and the best interest rates. A score between 680 and 739 may limit you to 5% or 10% down. Below 680, many conventional lenders require 10% to 20% down, or may not lend to you at all.
Your debt-to-income ratio (DTI) is the total of all your monthly debt payments divided by your gross monthly income. Most conventional lenders cap DTI at 43% to 50%, though some go higher. If your DTI is already high from car loans, credit cards, or student loans, a lender may require a larger down payment to offset the risk, or may deny you altogether.
Lenders also look at your savings history and employment. A stable job for at least two years and savings that cover your down payment plus closing costs signal lower risk. If you have recently changed jobs, received a large gift, or have little savings history, a lender may ask for a larger down payment or additional documentation.
Down payment assistance programs that may reduce what you pay upfront
Many states, counties, and nonprofits offer down payment assistance for first-time homebuyers or borrowers with lower incomes. These programs may cover part or all of your down payment through grants (money you do not repay) or forgivable loans (loans that disappear if you stay in the home for a set period). Some programs are tied to specific lenders or loan products; others work with any conventional lender.
Common sources include your state housing finance agency, local housing authorities, and nonprofits like NeighborWorks America. Some employers and credit unions also offer down payment help. The catch is that many programs have income limits, require you to complete a homebuyer education course, or restrict the price of the home you can buy. Availability and terms change frequently.
The fastest way to learn what exists in your area is to contact your state housing finance agency or call 211 (a referral line for local programs). Have your income, credit score range, and target home price ready. Be aware that some programs take weeks to process, so start early if you are house hunting.
Closing costs and cash reserves lenders expect beyond the down payment
The down payment is only part of the cash you need at closing. Closing costs—which include appraisal, title search, homeowners insurance, property taxes, and lender fees—typically run 2% to 5% of the loan amount. On a $300,000 home, that is $6,000 to $15,000 on top of your down payment.
Some lenders also require you to have cash reserves after closing—usually one to three months of mortgage payments sitting in savings. This shows the lender you can handle the payment if your income drops. If you are putting down less than 10%, reserves become more important to lenders.
A few programs let you roll closing costs into the loan or have the seller pay them, but this increases your loan amount and monthly payment. Knowing your total cash need—down payment plus closing costs plus reserves—before you start house hunting prevents surprises and helps you decide what down payment size is realistic for your situation.
How to compare down payment options across different lenders
Different lenders offer different down payment minimums and charge different interest rates for the same down payment. A lender offering 3% down at 6.5% interest may be more expensive over time than one requiring 5% down at 6.0%, depending on the loan term and PMI costs. Use a mortgage calculator to compare total cost, not just the down payment percentage.
When you get quotes from lenders, ask for a Loan Estimate—a standardized form that shows the interest rate, down payment, PMI cost, closing costs, and monthly payment. Compare the same down payment amount across at least three lenders. Pay attention to whether the rate is locked (may provide for a set period) or floating (subject to change).
Also ask whether the lender has overlays—extra requirements on top of standard conventional guidelines. Some lenders require higher credit scores or lower debt-to-income ratios than others, which can shift what down payment they will accept. Getting multiple quotes takes a few hours but can save you thousands over the life of the loan.
When a larger down payment makes financial sense
A larger down payment (15% to 20%) makes sense if you have the cash available and are not sacrificing your emergency fund or other financial goals. You avoid PMI, lower your monthly payment, and pay less interest over time. If you plan to stay in the home for 10+ years, the savings compound.
A smaller down payment (3% to 5%) makes sense if you want to preserve cash for emergencies, invest the difference in retirement accounts, or buy sooner rather than wait to save. If you have a stable income and good credit, the extra cost of PMI may be worth the flexibility. Some borrowers also choose a middle ground—10% down—to balance monthly payment and PMI cost.
The "right" down payment depends on your income stability, other debts, emergency savings, and timeline. There is no universal answer. Run the numbers for your situation, and consider talking to a mortgage broker or nonprofit housing counselor who can walk through the trade-offs with you.
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes. Most lenders accept gift funds from family members, but they require a signed gift letter stating the money is a gift, not a loan you have to repay. The lender will verify the gift came from the donor's account and may ask for bank statements. Some lenders limit how much of your down payment can be a gift; others allow 100% gift funds.
What happens if I put down less than 3%?
Conventional loans typically do not go below 3% down. If you cannot save 3%, you may may have access to for an FHA loan (which allows 3.5% down) or a state or local down payment assistance program. Some credit unions and community banks have their own products with lower minimums, so it is worth asking around.
Can I remove PMI before I reach 20% equity?
Federal law requires lenders to remove PMI automatically once your loan balance reaches 78% of the original home value, which usually happens after 11 to 12 years of payments on a 30-year loan. You can request removal earlier if you reach 20% equity through a combination of payments and home appreciation, but the lender may require a new appraisal to confirm the home's value.
Does a larger down payment may provide a lower interest rate?
Usually, but not always. A larger down payment lowers your risk to the lender, so they often offer a slightly lower rate. However, your credit score, debt-to-income ratio, and market conditions matter more. A borrower with excellent credit and 5% down may get a better rate than one with fair credit and 15% down. Always compare rates across lenders for the same down payment amount.
What if my down payment comes from selling another home?
Proceeds from a home sale count as your own funds and do not require a gift letter. However, if the sale has not closed yet, the lender may require a signed purchase agreement or closing statement to verify the funds are coming. If there is a delay between selling and buying, keep the money in a liquid account (savings or money market) so the lender can see it in your bank statements.