How Mortgage Down Payments Work and What You Actually Need to Save

What a down payment is and why lenders require it

A down payment is the money you give the seller on the day you close the sale. It comes from your own pocket, not from the loan. The lender then finances the rest—usually 80 to 97 percent of the home's price, depending on the loan type and your financial profile.

Lenders require a down payment because it reduces their risk. If you stop paying the mortgage, the lender can foreclose and sell the house. The down payment is their cushion: if the home sells for less than you owe, your down payment absorbs some of that loss. A larger down payment means you have more skin in the game, which makes you statistically less likely to walk away.

Down payment size also affects your monthly payment and the total cost of the loan. A bigger down payment means a smaller loan amount, which lowers your monthly mortgage payment and the interest you pay over the life of the loan. It can also determine whether you pay private mortgage insurance (PMI)—a monthly fee that protects the lender if you default. Most conventional loans require PMI if your down payment is less than 20 percent of the home price.

Key Takeaways

• Down payments typically range from 3 to 20 percent of the home price, depending on the loan program and your credit profile.
• Putting down less than 20 percent usually means paying private mortgage insurance (PMI) on top of your regular mortgage payment.
• Federal Housing Administration (FHA) loans allow down payments as low as 3.5 percent, while conventional loans often require 5 to 10 percent minimum.
• Down payment assistance programs exist through nonprofits, local housing authorities, and some employers, though they vary by location and income.
• The down payment is separate from closing costs—additional fees for appraisals, inspections, title work, and lender processing that typically run 2 to 5 percent of the home price.

Common down payment amounts and what they mean for your loan

Down payment requirements vary by loan type. A conventional loan (the most common type, not backed by a government agency) typically requires a minimum down payment of 5 to 10 percent, though some lenders accept 3 percent. An FHA loan, backed by the Federal Housing Administration, allows down payments as low as 3.5 percent. A VA loan, for military members and veterans, often requires zero down payment. A USDA loan, for rural properties, also typically requires zero down.

The percentage you put down directly affects your monthly payment. On a $300,000 home with a 30-year mortgage at 7 percent interest: a 3 percent down payment ($9,000) means borrowing $291,000, plus PMI; a 10 percent down payment ($30,000) means borrowing $270,000, usually with PMI; a 20 percent down payment ($60,000) means borrowing $240,000 with no PMI required. The difference in monthly payment between these scenarios can be $200 to $400 per month.

PMI is not permanent. Once you have paid down the loan balance to 80 percent of the original home value—through a combination of payments and home appreciation—you can request PMI removal. Some loans allow automatic removal once you reach that threshold; others require you to ask. Check your loan documents or call your lender to understand the rules for your specific mortgage.

Where down payment money can come from

Lenders have strict rules about the source of your down payment. The money must be yours—either savings, a gift from a family member, or proceeds from selling another asset. Lenders verify this through bank statements, typically covering the last 60 days. They want to see that the money has been in your account long enough that it is clearly yours, not a loan you took out to make the down payment look bigger.

If a family member gives you money for the down payment, most lenders require a gift letter—a signed statement from the donor saying the money is a gift, not a loan you have to repay. The letter must include the donor's name, relationship to you, the amount, and a statement that no repayment is expected. Some lenders also require proof that the donor has the funds (a bank statement), though not always.

Borrowed money does not count. A personal loan, a credit card advance, or a loan from a friend will show up on your credit report or in your bank statements, and lenders will factor it into your debt-to-income ratio—the percentage of your monthly income that goes to debt payments. Taking on new debt before closing can lower your approval odds or reduce the loan amount you may have access to for.

Down payment assistance programs and where to find them

Many cities, counties, and states run down payment assistance programs. These are typically grants or forgivable loans that reduce the amount you need to save. Some programs cover the full down payment; others cover a portion. may be able to access usually depends on income (most cap it at 80 to 120 percent of the area median income), credit score (typically 620 or higher), and first-time homebuyer status, though some programs serve repeat buyers.

Common sources include your local housing authority or housing finance agency (search "[your state] housing finance agency" online), nonprofits like NeighborWorks or the Local Initiatives Support Corporation (LISC), and some employers or credit unions. A few states and cities also offer tax credits or deductions for down payment savings. The programs, amounts, and rules change frequently and vary widely by location.

The fastest way to learn what exists in your area is to contact your local housing authority or call 211 (a free referral service). Tell them your income, whether you are a first-time buyer, and what price range you are looking at. They can tell you which programs are currently open and what each one requires. Many programs have waiting lists or limited funding, so timing matters.

How down payment size affects your total cost

A smaller down payment feels easier in the moment—you save less money before buying—but it costs more over time. Here is why: a lower down payment means a larger loan, which means more interest paid over 30 years. It also triggers PMI, which is an extra monthly fee that does not go toward building equity in your home.

On a $300,000 home at 7 percent interest over 30 years, the difference between a 3 percent down payment and a 20 percent down payment is roughly $100,000 to $150,000 in total interest and PMI combined. That is money that leaves your pocket and never comes back. However, if you cannot save 20 percent and waiting years to buy means missing out on building equity, a smaller down payment may still be the right choice for your situation.

The math also depends on home price trends in your area. If homes are appreciating faster than your down payment grows, buying sooner with a smaller down payment can put you ahead. If the market is flat or declining, waiting to save more makes more sense. There is no universal right answer—it depends on your local market, your income growth, and your personal timeline.

Down payments versus closing costs—what is the difference

Down payment and closing costs are two separate amounts, and many first-time buyers confuse them. Your down payment goes to the seller as part of the purchase price. Your closing costs go to the lender, title company, appraiser, inspector, and other service providers involved in the transaction. Closing costs typically run 2 to 5 percent of the home price and include appraisal fees, title insurance, lender fees, property taxes, homeowners insurance, and attorney fees (in some states).

You need to save for both. If you are buying a $300,000 home with a 5 percent down payment ($15,000) and closing costs of 3 percent ($9,000), you need $24,000 out of pocket before you get the keys. Some down payment assistance programs cover closing costs too; others do not. Ask any program you are considering whether they cover both or just the down payment.

Some lenders allow you to roll closing costs into the loan, which means you do not pay them upfront but you pay interest on them for 30 years. This lowers your upfront cash need but increases your total cost. It is an option worth discussing with your lender if saving for both down payment and closing costs feels impossible right now.

Frequently Asked Questions

Can I use a 401(k) or IRA to fund my down payment?

Some retirement accounts allow withdrawals for first-time homebuyers without the usual early-withdrawal penalty. A traditional or Roth IRA lets you withdraw up to $10,000 lifetime for a first-time home purchase. A 401(k) may allow a loan against your balance rather than a withdrawal. Talk to your plan administrator about the rules for your specific account, because taxes and penalties vary.

What credit score do I need to get a mortgage with a low down payment?

Most lenders require a credit score of at least 620 for an FHA loan and 640 to 680 for a conventional loan with a low down payment. Some lenders are stricter. A higher score usually means better interest rates and more loan options. If your score is below 620, focus on paying down existing debt and correcting errors on your credit report before applying.

If I put down less than 20 percent, how long do I have to pay PMI?

PMI stays on your loan until you reach 80 percent loan-to-value (LTV)—meaning you have paid the loan down to 80 percent of the original home price. On a $300,000 home, that is when the loan balance drops to $240,000. This typically takes 8 to 15 years, depending on your down payment, interest rate, and how fast you pay. Once you hit that mark, request PMI removal from your lender in writing.

Can I get a mortgage with no down payment?

Yes, if you may have access to for a VA loan (military or veteran), a USDA loan (rural property), or certain state or local first-time buyer programs. Conventional loans almost always require at least 3 percent down. If you are not may be able to access for a zero-down program, a 3 to 5 percent down payment is usually the lowest you will find.

What happens if I cannot save enough for a down payment?

Explore down payment assistance programs in your area through your local housing authority or 211. Consider whether a lower down payment with PMI makes sense for your timeline. Talk to a mortgage lender about your options—some have programs or partnerships you may not know about. If homeownership is not possible right now, renting while you save is a valid choice too.