What Down Payment Do You Need for a Conventional Mortgage
Conventional loans typically require a down payment between 3% and 20% of the home's purchase price, though 20% is the most common target.
A conventional loan is a mortgage not backed by a government agency like the FHA or VA. The down payment you need depends on your credit score, the lender you choose, and how much risk they're willing to take. A 3% down payment is the minimum many lenders will accept, but it comes with higher monthly costs because you'll pay private mortgage insurance (PMI)—a fee that protects the lender if you stop paying. A 20% down payment eliminates PMI entirely, which is why lenders and real estate professionals often push toward that number.
The relationship between your down payment and your monthly bill is direct and permanent until you refinance. The smaller your down payment, the larger your loan amount, and the higher your monthly payment. PMI typically adds $100 to $300 per month to a mortgage on a $300,000 home, depending on your down payment size and credit score. That cost stays until you've paid down the loan to 80% of the home's original value—a process that can take years.
Key Takeaways
- Conventional loans allow down payments as low as 3%, but most lenders prefer 5% to 10% as a practical middle ground.
- Any down payment below 20% triggers PMI, which adds $100 to $300 monthly and stays on your loan until you reach 80% equity.
- Your credit score affects both whether a lender will accept a low down payment and how much PMI will cost you each month.
- The down payment amount you choose affects your total loan size, monthly payment, and long-term cost more than almost any other factor in the mortgage.
- Some lenders offer slightly different minimums and PMI structures, so comparing offers from multiple lenders can save thousands over the life of the loan.
How down payment size connects to your monthly costs
Your down payment is the money you pay upfront; the rest becomes your loan. On a $300,000 home, a 3% down payment is $9,000, leaving you to borrow $291,000. A 20% down payment is $60,000, leaving you to borrow $240,000. That $51,000 difference in borrowed money translates directly into a higher monthly payment—roughly $300 more per month before PMI is added.
PMI is calculated as a percentage of your loan amount and varies by lender, but typically ranges from 0.3% to 1.5% annually. On a $291,000 loan with a 0.75% PMI rate, you'd pay about $218 per month in insurance alone. That cost is built into your monthly mortgage payment, so you don't write a separate check—but you do pay it every month until you've paid the loan down to 80% of the home's original purchase price. For a $300,000 home, that means you need to reach $240,000 in equity before PMI drops off.
The math matters because a 3% down payment on a $300,000 home can cost you $50,000 to $100,000 more over 30 years than a 20% down payment, when you add up the higher loan amount, higher interest, and PMI combined. That's why lenders and financial advisors often recommend saving toward 10% or 20% if you can, even if it means waiting longer to buy.
Credit score and its effect on down payment options
Your credit score determines whether a lender will accept a 3% down payment at all, and how much PMI will cost if they do. Most lenders require a credit score of at least 620 to 640 for a conventional loan with a 3% down payment. If your score is below that, you may need to put down 5%, 10%, or more—or look at FHA loans, which allow lower credit scores but have their own insurance costs.
Even if your score qualifies you for 3% down, a higher score gets you a lower PMI rate. A borrower with a 740 credit score might pay 0.5% annually in PMI, while a borrower with a 660 score pays 1.25% on the same loan size. Over 30 years, that difference can add up to $20,000 or more. This is one reason why improving your credit score before applying for a mortgage—even by 20 or 30 points—can save real money.
If your credit score is currently below the range lenders prefer, you have two paths: wait and work on raising your score, or explore FHA loans, which accept scores as low as 500 but charge mortgage insurance that works differently and may cost more overall. Understanding your own score before you start shopping for a mortgage helps you know which down payment options are actually available to you.
The difference between 3%, 5%, 10%, and 20% down
| Down Payment | Amount on $300,000 Home | Loan Amount | PMI Required? | Typical Monthly PMI |
|---|---|---|---|---|
| 3% | $9,000 | $291,000 | Yes | $200–$300 |
| 5% | $15,000 | $285,000 | Yes | $160–$240 |
| 10% | $30,000 | $270,000 | Yes | $100–$150 |
| 20% | $60,000 | $240,000 | No | $0 |
The jump from 3% to 5% down saves you roughly $40 to $60 per month in PMI and reduces your loan amount by $6,000. That's a meaningful difference if you have the extra cash, but it's not transformative. The jump from 10% to 20% down is larger: you eliminate PMI entirely, save $100 to $150 per month, and reduce your loan by $30,000. For many buyers, 10% down represents a practical compromise—you avoid the highest PMI costs, you don't have to wait years longer to save, and you still build equity faster than with 3% or 5%.
The right choice depends on your situation. If you have $60,000 saved and are ready to buy, 20% down makes financial sense. If you have $30,000 saved and waiting another two years to save $60,000 means missing out on a home you want, 10% down is reasonable. If you have $15,000 and the market is moving fast, 5% down is a real option. The worst choice is stretching yourself too thin to hit a down payment target—if you put down 20% but have no emergency fund left, you're vulnerable to the first major expense.
When you can remove PMI from your loan
PMI is not permanent, but the rules for removing it are strict. You can request PMI removal once you've paid your loan down to 80% of the home's original purchase price. On a $300,000 home, that means you need to reach $240,000 in equity. For most borrowers, this happens after 8 to 12 years of regular payments, though it depends on your interest rate and how much extra you pay toward principal each month.
Some lenders will automatically remove PMI once you hit 80% equity; others require you to request it in writing. A few lenders have a "drop-off" date built into your loan documents—usually around 22 years into a 30-year mortgage—when PMI falls off automatically whether you've reached 80% equity or not. Check your loan documents or call your lender to find out which rule applies to you.
Refinancing can also remove PMI, but only if your home has appreciated enough that you now have 20% equity. If you bought for $300,000 with 3% down and your home is now worth $350,000, you have more than 20% equity and can refinance without PMI. Refinancing costs money upfront (typically $2,000 to $5,000), so it only makes sense if the PMI savings and a lower interest rate together justify the cost.
Comparing down payment options across different lenders
Not all lenders offer the same down payment minimums or PMI rates. Some banks will accept 3% down; others require 5% or 10%. Some credit unions offer slightly lower PMI rates than large national lenders. Some online lenders have faster approval but higher fees. The difference between lenders can amount to $50 to $150 per month in PMI costs alone, which is why getting quotes from at least three lenders before you commit is standard practice.
When you compare offers, look at the total monthly payment (including PMI), the interest rate, the loan term, and any upfront fees. A lender with a slightly higher interest rate but lower PMI might cost less overall than a lender with a lower rate but higher insurance. A lender that charges an origination fee upfront might offer a lower interest rate that saves you money over time. The only way to know is to ask for a Loan Estimate from each lender—a standardized form that shows all costs side by side.
You're also not locked into one lender's down payment requirement. If one lender requires 10% down and another accepts 5%, you can choose based on how much you have saved and what fits your timeline. Shopping around takes a few hours but can save tens of thousands of dollars over the life of the loan.
Down payment assistance programs and where to find them
If saving 10% or 20% down feels out of reach, down payment assistance programs exist in many states and counties. These programs come from local housing authorities, nonprofits, and sometimes employers. Some offer grants (money you don't repay), some offer low-interest loans, and some offer a combination. The amount varies widely—from $5,000 to $50,000 depending on the program and your income.
To find programs in your area, start with your city or county housing authority website, or call 211 (a free referral line). You can also search "down payment assistance [your state]" to find state-level programs. Many programs have income limits, so you'll need to know your household income before you call. Some programs require you to complete a homebuyer education course, which takes a few hours and teaches you how mortgages work and how to manage a home.
Down payment assistance can change your math significantly. If a program gives you $15,000 toward a down payment, you only need to save $15,000 instead of $30,000 to reach 10% down on a $300,000 home. That can cut your savings timeline in half. The catch is that some programs have waiting lists or limited funding, so it's worth calling early to understand what's available and when you might be able to use it.
Frequently Asked Questions
Can I use a gift from family toward my down payment?
Yes. Most lenders allow down payment gifts from family members, but they require a signed letter from the gift-giver stating the money is a gift, not a loan you have to repay. The lender wants to know your total debt obligations, so if the money is technically a loan, it affects how much you can borrow. Keep the gift letter with your mortgage paperwork.
What happens if I put down less than 3%?
Most conventional lenders won't accept less than 3% down. If you have less saved, you can look at FHA loans (which allow 3.5% down) or state and local down payment assistance programs. Some first-time homebuyer programs also offer paths with very low down payments, though they may have income or location restrictions.
Does a larger down payment affect my interest rate?
Yes, usually in your favor. Borrowers with larger down payments are seen as lower risk, so lenders often offer them lower interest rates. A 20% down payment might get you a rate 0.25% to 0.5% lower than a 3% down payment. Over 30 years, that small difference in rate can save $30,000 to $60,000 in total interest paid.
If I put down 20%, do I need to worry about anything else?
No PMI, but yes to other costs: property taxes, homeowners insurance, HOA fees if applicable, and maintenance. Your monthly housing payment includes the mortgage itself, property tax, and insurance. Budget for repairs and upkeep separately—a general rule is 1% of the home's value per year for maintenance.
Can I remove PMI early if I pay extra toward my loan?
Paying extra toward principal does help you reach 80% equity faster, which is when you can request PMI removal. If you pay an extra $200 per month toward principal, you might reach that threshold years earlier than the standard schedule. However, you still have to formally request PMI removal—it doesn't happen automatically just because you've paid extra.