How Much Down Payment You Actually Need to Buy a House

The down payment amount depends on the loan type, not a fixed rule

There is no single down payment requirement for buying a house. The amount you need depends on which loan program you use, your credit history, and the purchase price. Conventional loans typically require 3 to 20 percent down. FHA loans allow as little as 3.5 percent down. VA loans and USDA loans can require zero down if you meet their specific requirements. The lender you choose, not a government mandate, sets the minimum.

The down payment is the cash you bring to closing. The rest of the purchase price is borrowed through a mortgage. A larger down payment means a smaller loan, lower monthly payments, and no mortgage insurance requirement. A smaller down payment means you borrow more, pay more each month, and usually pay mortgage insurance on top of your loan payment.

Key Takeaways

• Conventional loans require 3 to 20 percent down, but 20 percent avoids mortgage insurance costs.
• FHA loans allow 3.5 percent down and are designed for first-time buyers with lower credit scores.
• VA and USDA loans can require zero down if you are a veteran or meet rural property requirements.
• Mortgage insurance is added to your monthly payment when you put down less than 20 percent on a conventional loan.
• The down payment amount you choose affects your total loan cost, monthly payment, and whether you need insurance.

Conventional loans: 3 to 20 percent down

A conventional loan is a mortgage not backed by the federal government. Lenders set their own rules. Most conventional lenders require a minimum of 3 percent down, though some require 5 or 10 percent. The higher your down payment, the lower your interest rate and monthly payment typically are.

If you put down less than 20 percent on a conventional loan, you pay private mortgage insurance (PMI). This is an extra monthly cost added to your mortgage payment. It protects the lender if you stop paying. PMI typically costs 0.5 to 1 percent of your loan amount per year, split into monthly payments. On a $300,000 loan with 5 percent down, PMI might add $125 to $250 per month. You can remove PMI once you have paid down the loan to 80 percent of the home's original value, though this takes years.

If you can put down 20 percent, you avoid PMI entirely. On a $400,000 home, 20 percent is $80,000. That is a large sum upfront, but it saves you thousands in insurance costs over the life of the loan.

FHA loans: 3.5 percent down with mortgage insurance built in

An FHA loan is backed by the Federal Housing Administration. These loans are designed for buyers who have lower credit scores or smaller down payments. The minimum down payment is 3.5 percent of the purchase price. On a $300,000 home, that is $10,500.

FHA loans require two types of mortgage insurance. An upfront mortgage insurance premium (UFMIP) is added to your loan amount at closing—typically 1.75 percent of the loan. An annual mortgage insurance premium (MIP) is added to your monthly payment and does not go away as long as you own the home, even after you have paid down the loan significantly. This makes FHA loans more expensive over time than conventional loans, but they allow buyers with credit scores as low as 580 to borrow.

FHA loans have limits on how much you can borrow. These limits vary by county and change each year. Your lender can tell you the current limit for your area.

VA loans: Zero down for may be able to access veterans

If you are a veteran, active-duty service member, or surviving spouse, you may be able to use a VA loan. VA loans require zero down payment. You only need a valid Certificate of may be able to access from the Department of Veterans Affairs. The VA guarantees part of the loan to the lender, which is why lenders will lend without a down payment.

VA loans do not require mortgage insurance. Instead, you pay a one-time VA funding fee at closing, typically 2.3 percent of the loan amount for first-time users. This fee can be rolled into your loan. VA loans also have no maximum loan amount in most cases, though some lenders set their own limits.

To use a VA loan, you must obtain your Certificate of may be able to access from the VA website or through your lender. The process takes a few days to a few weeks. You can apply online at VA.gov or through your lender.

USDA loans: Zero down for rural properties

USDA loans are backed by the U.S. Department of Agriculture and are designed for buyers in rural areas. They require zero down payment if you meet income limits and the property is in an may be able to access rural area. USDA loans also do not require mortgage insurance, though you pay a USDA may provide fee at closing, typically 2 percent of the loan amount.

USDA loans have income limits that vary by county. You must not exceed 115 percent of the area median income. Your lender can tell you whether your income qualifies and whether a specific property is in an may be able to access area. The USDA maintains a property may be able to access map on its website.

USDA loans are slower to process than conventional or FHA loans because the USDA reviews the application after the lender does. Plan for 45 to 60 days from application to closing.

How to decide what down payment to make

Start by calculating what you can afford to save. A down payment is cash you will not have access to after closing. If saving 20 percent would leave you with no emergency fund, a smaller down payment may be the right choice, even if it means paying mortgage insurance.

Compare the total cost of each option. A 3 percent down conventional loan with PMI might cost more per month than a 10 percent down loan without PMI, but the 3 percent option lets you buy sooner. An FHA loan with 3.5 percent down costs less per month than a conventional loan with 3 percent down because FHA rates are often lower, but the mortgage insurance stays forever. Use a mortgage calculator to compare monthly payments across loan types and down payment amounts.

Check your credit score. If it is below 620, FHA is often your only option. If it is above 740, conventional loans with lower rates become more attractive. If you are a veteran or buying in a rural area, VA and USDA loans may offer the best terms regardless of credit score.

What happens at closing with your down payment

Your down payment is due at closing, the final step before you own the home. You will also pay closing costs—typically 2 to 5 percent of the purchase price—for appraisals, inspections, title insurance, and lender fees. Down payment and closing costs are separate. A buyer putting 5 percent down on a $300,000 home needs $15,000 for the down payment plus $6,000 to $15,000 for closing costs.

Some programs allow you to roll closing costs into your loan or ask the seller to pay them. Your lender will explain your options. Down payment assistance programs in your state or county may also cover part or all of your down payment and closing costs. Contact your local housing authority or call 211 to learn what programs exist in your area.

Frequently Asked Questions

Can I borrow my down payment from someone else?

Lenders allow down payment gifts from family members, but not loans. If a relative gives you money as a gift, you must document it in writing and the relative must confirm they do not expect repayment. If you borrow the money, the lender will count it as debt and your monthly payment will be higher.

What if I do not have enough saved for a down payment?

Down payment assistance programs exist in most states and counties. These programs provide grants or forgivable loans to cover part or all of your down payment. Contact your local housing authority or call 211 to find programs in your area. Some programs have income limits or require you to take a homebuyer education course.

Does a larger down payment always mean a lower interest rate?

Usually, yes. Lenders offer lower interest rates to borrowers who put down more money because the lender's risk is lower. However, the difference between 10 percent and 20 percent down might be only 0.25 percent in interest rate. Use a calculator to see whether the rate savings justify delaying your purchase to save more.

Can I use my retirement account for a down payment?

You can withdraw from a traditional or Roth IRA penalty-free if you are a first-time homebuyer, up to $10,000 lifetime. You cannot borrow from a 401(k) for a down payment without triggering taxes and penalties. Talk to your tax preparer or financial advisor before withdrawing retirement funds.

What if the home appraises for less than the purchase price?

If the appraisal comes in low, you have three choices: renegotiate the price with the seller, increase your down payment to cover the difference, or walk away. Your lender will not lend more than the appraised value. This is why an appraisal inspection is part of every mortgage process.