How Much Down Payment Do First-Time Buyers Actually Need?
What First-Time Buyers Put Down
You do not need 20 percent down to buy a house. That number is a myth that stops many people from buying when they could. First-time buyers put down anywhere from 0 to 20 percent, depending on the loan type and what you can afford. The most common range is 3 to 10 percent.
The amount you put down affects your monthly payment, how much interest you pay over time, and whether you pay an extra insurance fee called mortgage insurance. A smaller down payment means a larger loan, a higher monthly bill, and mortgage insurance added to your payment. A larger down payment means you borrow less, pay less interest, and skip the insurance. But you do not have to choose between buying now with less money down or waiting years to save 20 percent.
Key Takeaways
- Federal Housing Administration (FHA) loans let first-time buyers put down as little as 3.5 percent, and some state and local programs cover part of that down payment.
- Conventional loans typically require 3 to 5 percent down for first-time buyers, though some lenders go lower.
- Mortgage insurance is added to your monthly payment if you put down less than 20 percent, but it is not permanent—you can remove it once you build equity.
- Down payment help programs exist in most states and counties, funded by housing authorities, nonprofits, and sometimes employers.
- The lowest down payment option is not always the cheapest over time; comparing total costs across loan types matters more than the down payment alone.
FHA Loans: The Lowest Down Payment Path
FHA loans are backed by the Federal Housing Administration and are designed for first-time buyers and people with lower credit scores. The minimum down payment is 3.5 percent of the home price. On a $250,000 house, that is $8,750. You will pay mortgage insurance, but the insurance premium is built into your monthly payment and does not go away after you reach 20 percent equity—it stays for the life of the loan unless you refinance.
FHA loans have limits on how much you can borrow, and the limit varies by county. Your lender can tell you the limit for your area. You also need a credit score of at least 580 to may have access to for the 3.5 percent down option; a score of 500 to 579 requires 10 percent down. FHA loans allow gifts from family members to cover the down payment, which is useful if you do not have savings but relatives can help.
Conventional Loans: 3 to 5 Percent Down
Conventional loans are not government-backed; they come from banks, credit unions, and mortgage companies. Most conventional lenders require 3 to 5 percent down for first-time buyers, though some go as low as 3 percent. A few lenders offer 0 percent down, but these are less common and usually require a higher credit score and income verification.
Conventional loans also require mortgage insurance if you put down less than 20 percent, but the insurance is separate from your loan and can be removed once you reach 20 percent equity. This is a major difference from FHA loans. The insurance premium depends on your down payment size and credit score—the smaller your down payment, the higher the insurance cost. You pay it monthly until you request removal, which usually happens automatically once you hit 20 percent equity or after a set number of payments.
Down Payment Help Programs in Your State or County
Most states and many counties run programs that give money or loans to first-time buyers to cover part or all of the down payment. These programs are funded by housing authorities, state housing finance agencies, nonprofits, and sometimes employers. The money is usually a grant (you do not pay it back) or a forgivable loan (you pay it back only if you sell the house within a set time, often 5 to 10 years).
To find programs in your area, start with your state housing finance agency—search "[your state] housing finance agency" online. You can also call 211 (a free helpline) and ask about down payment help. Your lender may also know about local programs. Some programs have income limits, some require you to take a homebuyer education course, and some are tied to specific neighborhoods or property types. The amount available varies widely: some programs cover $5,000, others cover $50,000 or more.
Employer programs are less common but worth asking about. Some large employers, nonprofits, and government agencies offer down payment help as a benefit. Ask your human resources department whether your employer has a homebuyer program.
How Mortgage Insurance Works and When It Ends
Mortgage insurance protects the lender if you stop paying, not you. It is an extra monthly cost added to your payment when you put down less than 20 percent. The cost depends on your down payment size, loan type, credit score, and the loan amount. On a conventional loan, insurance typically runs 0.5 to 1.5 percent of the loan amount per year, paid monthly. On an FHA loan, the insurance is usually higher and does not go away.
On a conventional loan, you can remove mortgage insurance once you reach 20 percent equity in the home. Equity builds as you pay down the loan and as the home value increases. You can request removal once you hit 20 percent, or it may be removed automatically depending on your loan terms. Some lenders remove it automatically at 22 percent equity. On an FHA loan, mortgage insurance stays for the life of the loan if you put down less than 10 percent; if you put down 10 percent or more, it can be removed after 11 years of payments.
Comparing Down Payment Options Side by Side
The table below shows the key differences between the most common loan types for first-time buyers. Use it to see at a glance which option fits your situation, but remember that the lowest down payment is not always the cheapest choice over time.
| Loan Type | Minimum Down Payment | Mortgage Insurance | When Insurance Ends | Credit Score Needed |
|---|---|---|---|---|
| FHA | 3.5% | Yes, built into payment | After 11 years (if 10%+ down) or never (if under 10%) | 580 minimum |
| Conventional | 3–5% | Yes, separate from payment | When you reach 20% equity | 620+ typical |
| VA (if may be able to access) | 0% | No | N/A | Varies |
| USDA (rural areas) | 0% | Yes, but lower cost | Life of loan | 620+ typical |
A 3 percent down conventional loan with mortgage insurance that you can remove at 20 percent equity may cost less over time than a 3.5 percent FHA loan with insurance that never goes away. Run the numbers with your lender: ask for a loan estimate that shows the total cost of each option, including insurance, interest, and taxes over 30 years. This document will show you the real difference between options, not just the down payment size.
What Happens After You Put Down Your Down Payment
Once you have decided on a down payment amount and found a lender, you will receive a loan estimate within three business days. This document shows your interest rate, monthly payment, closing costs, and the total amount you will pay over the life of the loan. Read it carefully and compare estimates from at least two lenders.
At closing (usually 30 to 45 days after your offer is accepted), you will sign papers, transfer the down payment and closing costs to the title company or attorney, and receive the keys. Your lender will fund the loan, and the title company will record the deed. Your first mortgage payment is usually due 30 to 60 days after closing.
Frequently Asked Questions
Can I borrow the down payment from someone else?
FHA loans allow gifts from family members with no repayment required. Conventional loans also allow gifts, but the lender must verify in writing that it is a gift, not a loan. You cannot borrow down payment money from the seller or from a lender and hide it; lenders verify all your debts and income before closing.
What if I do not have enough for even 3 percent down?
Down payment help programs in your state or county may cover the full amount. Call 211 or contact your state housing finance agency to learn what is available. Some programs require you to complete a homebuyer education course first, which usually takes one day and is free or low-cost.
Does a larger down payment always mean a lower monthly payment?
Yes. A larger down payment means you borrow less, so your monthly principal and interest payment is lower. You also avoid or reduce mortgage insurance. However, you should not drain your savings to put down more; keep 3 to 6 months of expenses in reserve for emergencies after you buy.
Can I remove mortgage insurance early?
On a conventional loan, yes—once you reach 20 percent equity, you can request removal. On an FHA loan, it depends on your down payment: if you put down 10 percent or more, it can be removed after 11 years; if you put down less than 10 percent, it stays for the life of the loan.
What is the difference between a down payment and closing costs?
The down payment is what you pay toward the house price. Closing costs are fees for the loan, title search, appraisal, inspection, and other services—usually 2 to 5 percent of the home price. You pay both at closing. Some down payment help programs also cover closing costs.