How Much Down Payment Do You Need for a House?

How much should you put down on a house?

Wondering how much down payment you need for your dream home? You might be surprised!

The typical buyer only puts down 13%, and if you’re under 32, that number drops to a mere 8%. Some loan programs even let you slide by with just 3% or nothing at all!

While a 20% down payment to dodge mortgage insurance sounds great, it’s not always necessary or smart. In fact, most home buyers opt for a much smaller chunk upfront. After all, wouldn’t you rather have a cozier nest egg than be “house poor” from an oversized down payment?

In this article (Skip to...)

• Putting 20% down
• What lenders require
• Down payment calculator
• Large vs small down payments
• Down payment assistance
• FAQ

>Related: How to buy a house with $0 down: First-time home buyer

What is a down payment on a house?

In real estate, a “down payment” is the amount of cash you pay upfront toward the purchase of a home. Down payments vary in size and are typically expressed as a percentage of the purchase price. For example, a 10% down payment on a $400,000 home is $40,000. Similarly, if you put $12,000 down on that same home, then your down payment would be 3%.

The term “down payment” exists because very few first-time home buyers opt to pay for homes using cash. Instead, many use a mortgage loan to finance the purchase of a home. An estimated 78% of all home buyers used a mortgage loan to buy a home, according to the National Association of Realtors 2023 Home Buyers and Sellers Generational Trends report.

Lenders require a down payment for most mortgage loans, but certain types of government-backed loan programs do not require buyers to put down any money at all.

Do you have to put 20% down on a house?

Contrary to what you may have heard, there is no requirement for a 20% down payment when purchasing a home. With a 20% down payment, lenders won’t require mortgage insurance on a conventional loan.

You can, however, buy a house with a lower down payment. In fact, the National Association of Realtors reported in 2023 that the median down payment for first-time home buyers was 13%. The average down payment drops to 8-10% for buyers aged between 23 and 41

This shows that many buyers are able to purchase homes without putting down the full 20%.

Factors influencing your down payment amount

When considering how much to put down on a house, various factors come into play. These factors determine the down payment amount required by lenders, so understanding these elements is important for both first-time homebuyers and repeat buyers alike.

Type of mortgage loan

The type of loan you choose significantly impacts your down payment requirements. Different loan programs have varying minimum down payments requirements.

Conventional loans

The down payment requirement for conventional loans, also known as conforming loans, is typically higher than for loans insured by the federal government. While many people believe you need to put 20% down, that’s not always the case.

• With a credit score of 620 or higher, you might qualify for a minimum down payment requirement as low as 3% through programs like Fannie Mae’s HomeReady or Freddie Mac’s Home Possible.
• Putting 20% down allows you to avoid private mortgage insurance (PMI), potentially securing a lower interest rate and lower monthly payments.

Moreover, conventional loans come in two types: fixed-rate and adjustable-rate. Fixed-rate loans keep the same interest rate over the life of the loan, providing stability in monthly payments. Adjustable-rate mortgages (ARMs), however, have interest rates that can change, potentially offering lower initial rates but with the risk of increasing over time.

FHA loans

FHA loans, backed by the Federal Housing Administration, are popular among first-time home buyers

• The minimum down payment requirement for FHA loans is 3.5% if your credit score is 580 or higher.
• If your credit score is between 500 and 579, you’ll need a 10% down payment.

Note that FHA loans require an upfront mortgage insurance premium and ongoing premiums (MIP) for the life of the loan (until the loan balance is paid in full or refinanced).

VA loans

VA loans, guaranteed by the Department of Veterans Affairs, offer significant benefits to eligible service members and veterans:

• VA loans require no down payment.
• While there’s no mortgage, there is a funding fee that can be rolled into the loan amount.

The exact funding fee depends on the loan term and whether the borrower has used their VA loan benefits before.

USDA loans

The U.S. Department of Agriculture offers USDA loans for rural and some suburban home buyers.

• USDA loans offer zero down payment mortgages for eligible borrowers.
• These loans are designed to promote homeownership in specific geographic areas.

However, there are specific eligibility requirements based on home price, location, and borrower income.

Credit score

Your credit score is another important factor influencing how much money you’ll need for a down payment. A higher credit score can qualify you for loan options with lower down payment requirements and more favorable interest rates. In contrast, a lower credit score might call for a larger down payment to offset the increased risk perceived by mortgage lenders.

Home price and location

The home price and location significantly impact your down payment amount.

• In high-cost areas, you might need a larger down payment to stay within conforming loan limits.
• If the home’s purchase price exceeds conforming loan limits, you may need a jumbo loan, which typically requires at least a 10% down payment.

Type of property

The property type you’re purchasing also affects how much you should put down on a house.

Primary residence

For a primary residence, the minimum down payment requirement is often lower compared to other property types. Many down payment options are available with competitive terms for those buying their main home, which improves affordability for first-time home buyers.

Second home

Purchasing a second home typically requires a higher down payment than a primary residence. Lenders demand a larger down payment, typically between 10% and 20% of the home’s value, because they view second homes as riskier investments.

Investment property

When buying investment properties, you can expect even higher down payment requirements. Lenders usually require at least a 20% to 25% down payment for investment properties due to the increased risk associated with rental and income-generating real estate.

Understanding these factors can help you prepare your savings account and ensure you’re financially ready for the home buying process. Evaluating your financial situation and planning accordingly can make achieving the best mortgage for your needs a more attainable goal.

Calculating your ideal down payment amount

Understanding how much down payment for a house you need is key in the home buying process. Let’s explore tools and examples to help you calculate your down payment amount and understand its impact on your mortgage loan.

Down payment calculator

This down payment calculator is a valuable tool that can help you estimate the down payment amount required for your new home. By inputting details such as the purchase price, loan term, interest rate, and type of loan, these calculators provide an instant estimate of the down payment you need.

They can also show how different down payment amounts impact your monthly mortgage payment and overall loan amount.

Examples of down payment options

Let’s look at some examples to illustrate how much to put down on a house:

Conventional loan with PMI

• Home price: $300,000
• Down payment percentage: 3%
• Down payment amount: $9,000
• Loan amount: $291,000

If you opt for a down payment of less than 20% on a conventional mortgage, you’ll pay PMI until you reach 20% home equity. In other words, you’ll need to pay $58,200 (20%) of your principal loan balance before PMI is no longer required.

Conventional loan without PMI

• Home price: $300,000
• Down payment percentage: 20%
• Down payment amount: $60,000
• Loan amount: $240,000

FHA loan with minimum down payment

• Home price: $250,000
• Down payment percentage: 3.5%
• Down payment amount: $8,750
• Loan amount: $241,250

Keep in mind that you’ll pay mortgage insurance premiums (MIP) until the loan is paid or refinanced into another type of loan.

VA loan with no down payment:

• Home price: $350,000
• Down payment percentage: 0%
• Down payment amount: $0
• Loan amount: $350,000

Jumbo loan for a high-value property

• Home price: $750,000
• Down payment percentage: 20%
• Down payment amount: $150,000
• Loan amount: $600,000

How much should you put down on a house?

If you can easily afford it, you should probably put 20% down on a house. You’ll avoid paying for private mortgage insurance, and you’ll have a lower loan amount and smaller monthly payments to worry about. You could save a lot of money in the long run.

But there’s a catch. Not everyone can easily afford 20% down, especially with home prices having risen at a record pace over the last few years. And the amount you put down will depend on multiple factors beyond just the sale price of your home.

Benefits of a larger down payment

• Lower interest rates: Lenders often offer better rates for larger down payments, reducing overall costs. This means you’ll pay less interest over the life of the loan.
• Lower monthly payments: Financing less of the home price results in smaller monthly mortgage payments.
• No PMI: Avoid private mortgage insurance with a 20% down payment on conventional loans.
• Immediate equity: A larger down payment means you start with more home equity, reducing your loan-to-value ratio.
• Lower DTI: A lower debt-to-income ratio may increase future borrowing capacity.
• Competitive edge: Larger down payments can make your offer more attractive in a seller’s market.
• Afford more home: With the same monthly budget, you might qualify for a higher loan amount.

Remember, while a larger down payment means spending more money upfront, it often means you’ll pay less money overall due to reduced interest and fees over the life of the loan.

Benefits of a smaller down payment

• Buy sooner: Enter the housing market earlier without waiting to save a large sum.
• Home improvement funds: Keep money available for necessary repairs or renovations that new homeowners often face.
• Cash flexibility: Maintain an emergency fund for unexpected expenses and ongoing costs such as property tax and homeowners insurance costs.
• Higher ROI potential: A smaller down payment can lead to a higher rate of return if home values increase over time.
• Diverse investments: Use leftover funds for other investment opportunities outside of real estate.

When considering a low-down-payment home loan, remember that your down payment percentage will affect your monthly payments and overall loan cost. Use a mortgage calculator to compare different scenarios.

Remember, the ideal down payment amount depends on your unique financial situation and goals. Consult with a mortgage lender to determine the best strategy for your circumstances and to explore various home loans options.

Down payment assistance programs

Not everyone qualifies for a zero-down mortgage. Most borrowers need at least 3% down for a conventional mortgage or 3.5% down for an FHA loan. But what if you can’t quite afford the minimum down payment? Three percent down on a $300,000 home is still $9,000—a considerable amount of money.

Luckily, there are grants and loan programs that can help.

For example, every state has multiple down payment assistance programs (DPAs). These programs, often funded by state and local governments and nonprofits, offer money to make homeownership more accessible for lower-income or disadvantaged home buyers.

DPA funds can come in the form of a grant or loan, and the loans are often forgiven if you live in the home for a certain period of time. To find out whether you’re eligible for assistance, ask your Realtor or lender to help you find and apply for programs in your area.

FAQ: How much down payment for a house do you need?

Bottom line: How much should you put down on a house?

Discovering how much down payment for a house you require can be a revelation for many first-time home buyers. It’s often surprising to learn that you can afford a home with the savings you currently have.

Furthermore, if your funds are insufficient for the down payment and closing costs, you may qualify for down payment assistance programs. Don’t delay your home buying plans simply because you haven’t saved up a 20% down payment.

In fact, many potential buyers have the qualifications to purchase a home right now without realizing it.