First-Time Home Buyer Down Payment: How Much Is Needed?

First-time home buyer down payments start at 3%

Concerned about your first-time home buyer down payment? Rest assured, it’s typically lower than the traditional 20%.

Most buyers only need 3-3.5% for conventional or FHA loans, which is $13,500-$15,750 on a $450,000 home. Down payment assistance may reduce this further.

So if saving for the down payment is a challenge, ask your mortgage lender what help is available.

In this article (Skip to…) 

• Average down payment
• Required down payment
• Ideal down payment
• Down payment assistance
• First time buyer loans
• FAQ

Understanding first-time home buyer down payment requirements

Homeownership can be a complex process for first-time home buyers, especially when it comes to understanding down payments. Let’s break down the key concepts to help you make informed decisions about your home loan.

What is a down payment?

A down payment is the initial amount of money you pay upfront when purchasing a new home. It is usually calculated as a percentage of the home’s total purchase price, with the remaining cost financed through a mortgage loan.

Example: When purchasing a $450,000 home, a 10% down payment would amount to $45,000 paid upfront. The remaining $405,000 would be financed through a home loan.

A down payment not only affects the amount you need to borrow but can also influence your interest rate, monthly payments, and whether you’ll need to pay mortgage insurance.

Sometimes, a bank will lend you the entire amount you need to buy a home. This is known as 100% financing. But most mortgage loans require some contribution from you, the borrower.

What’s the average down payment on a house for first-time home buyers?

Many first-time home buyers believe they need 20% down. But that’s far from true. In fact, according to data from the National Association of Realtors, the average down payment for first-time home buyers is just 6% (versus 17% for repeat buyers). On a $450,000 home, that comes out to a $27,000 down payment.

You’re allowed to put down even less. If you have a credit score of 620, you might qualify for a mortgage with just 3% down — or $13,500 out of pocket for a $450,000 home.

Thanks to the low-down-payment mortgages available today, many first-time home buyers find the process a lot more affordable than they initially thought. Yet, keep in mind that if you don’t put 20% down, you’ll have the additional cost of private mortgage insurance (PMI). We discuss this in more detail below.

How much do first-time home buyers have to put down?

The minimum first-time home buyer down payment will depend on the type of mortgage loan, but most buyers will need at least 3% to 3.5% down. Some home buyers can put zero percent down using a VA loan or USDA loan. But only certain borrowers will qualify for these mortgage programs.

Imagine you want to buy a new home for $450,000. Here’s how much you might have to put down as a first-time home buyer, depending on your qualifications:

To qualify for one of those zero-down first-time home buyer loans, you have to meet special requirements.

• For a VA loan, you need to be an eligible U.S. Armed Forces veteran or active-duty service member
• For a USDA loan, you must meet local income limits and also purchase a house in a qualified “rural area” — which usually means a population of 20,000 or less

But the other two loan types, conventional and FHA, are a lot easier to come by. You’ll still need to meet minimum credit score requirements as well as employment and income guidelines, just like any other home loan. But there are no “special” requirements to get a low-down-payment FHA or conventional loan as a first-time home buyer.

How much should a first-time home buyer put down?

The amount you put down as a first-time home buyer is up to you. Determining the ideal down payment amount as a first-time homebuyer involves weighing various factors, including your financial situation, loan options, and long-term goals.

While the traditional 20% down payment is often cited, it’s not the only option, nor is it always the best choice for everyone.

The amount you should put down depends on:

• Your savings and income
• The home’s purchase price
• Your credit score
• Available loan programs
• Local real estate market conditions
• Your debt-to-income ratio

Take a look at one example:

*The example above assumes a 30-year fixed-rate mortgage with a 6% interest rate.

As you can see from the table above, there are certain benefits to making a bigger down payment. Namely, you have a smaller loan amount. That means your monthly payments are smaller. You’ll also be able to avoid paying private mortgage insurance (PMI) if you put down 20% or more. That can shave another $100 or more off your monthly bill.

But making a smaller down payment has benefits, too — even if they aren’t as obvious.

Benefits of a smaller down payment

If you want to get into a house sooner, it often makes sense to make a smaller down payment with what you have saved now (or what you will have saved in the near future).

Some of the benefits of making a smaller down payment include:

• Keep money in your emergency fund
• Save money to make improvements and repairs to your new place (which many home buyers end up having to do)
• Get into a house and start building equity sooner
• Many down payment assistance programs are designed for buyers making smaller down payments, potentially providing grants or low-interest loans to help cover the upfront costs.
• If you wait, the price of real estate will likely continue to rise along with how much money you need to save

Advantages of a larger down payment

While a larger down payment requires more money upfront, it can offer significant benefits:

• Smaller loan amount and lower monthly mortgage payments
• Potentially lower interest rates from lenders
• Less interest paid over the life of the mortgage loan
• No private mortgage insurance with 20% down on conventional loans
• In competitive real estate markets, larger down payments are appealing to sellers

Finally, remember that your mortgage loan isn’t set in stone. If you put down a smaller amount of money, you can usually refinance a few years down the road to get rid of mortgage insurance and reduce your monthly mortgage payment.

Ultimately, the right amount for a first-time home buyer down payment depends on your individual circumstances. It’s advisable to consult with a loan officer or financial advisor to evaluate different loan programs, explore down payment assistance options, and consider how your down payment choice aligns with your long-term financial goals.

First-time home buyer down payment assistance

Saving for a big down payment is not always the most advantageous strategy for some first-time buyers. It’s common for many to use a mix of savings, gifts, grants, and low-down-payment loans to buy their first home.

1. First-time home buyer down payment assistance programs

If you’re a first-time home buyer, you might not have to cover the whole down payment yourself. First-time buyers can apply for grants or low-interest second mortgages — called down payment assistance programs (DPAs) — to help with their upfront contribution.

Some down payment assistance loans may also help cover closing costs, further reducing your out-of-pocket expenses.

Types of down payment assistance

• Grants: Funds that don’t require repayment
• Forgivable loans: Second mortgage loans that may be forgiven over time
• Deferred-payment loans: Loans with payments postponed until you sell or refinance
• Low-interest loans: Affordable second mortgage options to complement your first mortgage loan

Eligibility for DPA programs

• Income limits relative to the area’s median income
• Credit score requirements
• Homebuyer education course completion
• Purchase price limits
• Primary residence requirement
• Work with a participating lender

It’s hard to generalize who qualifies for down payment assistance because each program could have slightly different guidelines. But it’s common for these programs to prefer first-time home buyers, borrowers with low- to moderate-income, and buyers in targeted “development areas.”

Number of down payment assistance programs by state

There are more than 1,600 of these DPAs nationwide. Many of these programs are run by nonprofits or local governments. Qualified buyers can receive anywhere from $5,000 to close to $35,000 toward their down payment and/or closing cost assistance.

Source: Down Payment Resource and The Urban Institute

Look for first-time home buyer programs with your state’s Housing Finance Agency or the U.S. Department of Housing and Urban Development (HUD).

For instance, California residents can check with the California Housing Finance Agency (CalHFA) for state-specific programs.

HUD.gov provides comprehensive resources and databases for first-time home buyers, including information on local down payment assistance programs. You can also Google “down payment assistance grants in [state, county, or city].”

2. Using gift funds to cover your down payment

Many first-time home buyer programs let you cover the whole down payment with gift funds.

The Conventional 97 loan and Freddie Mac Home Possible also allow 100% of the down payment to come from gift funds.

Example: If you’re buying a $450,000 home with a 3.5% down FHA loan, your entire $15,750 down payment could be a gift from your parents.

Gift money can come from a parent, friend, employer, or anyone generous enough to help you out with your home purchase. However, if you’re going to use gift funds toward your down payment, they have to be properly documented by the gift giver and the home buyer.

That means writing a “gift letter" to show your mortgage lender the money came from a verified source. This extra step in your home buying process will be worthwhile. Be sure to inform your loan officer or real estate agent early in the process that you’ll use gift funds for a down payment.

First-time home buyer loan programs

As a first-time home buyer, you can choose how much money you want to put down towards the home’s purchase price. The down payment can be as large as you wish, or as small — so long as you make the minimum investment required by your mortgage lender and loan program.

1. FHA loans: 3.5% down payment

Because these mortgages are insured by the Federal Housing Administration, FHA loans require a modest minimum down payment of 3.5% of the purchase price.

FHA mortgages are popular with first-time home buyers because the program allows below-average minimum credit scores.

• Minimum down payment: 3.5% with a credit score of 580 or higher; 10% down for scores between 500 and 579
• More lenient credit score requirements compared to conventional loans
• Mortgage insurance is required, which increases monthly payments
• Suitable for single-family homes, condominiums, and multi-unit properties

Mortgage insurance premium (MIP) for FHA loans is required for the life of the loan, whereas private mortgage insurance (PMI) for conventional loans can be canceled once the homeowner reaches 20% equity.

2. VA loans: 0% down payment

VA loans, guaranteed by the Department of Veterans Affairs, offer excellent benefits for American service members, veterans, and surviving spouses.

• No down payment required
• No private mortgage insurance (PMI)
• Competitive interest rates
• More flexible credit score requirements
• Eligibility is based on length and character of service

Although you won’t pay a monthly mortgage insurance premium, the VA loan does charge an upfront “funding fee".

3. USDA loans: 0% down payment

USDA or Rural Housing loans are designed for rural and some suburban home buyers. The U.S. Department of Agriculture typically defines rural areas as those with a population of 20,000 residents or fewer.

• No down payment required
• Must be in an eligible rural area as defined by USDA
• Income limits apply, typically up to 115% of the area median income
• Generally lower mortgage insurance costs compared to FHA loans
• Intended for primary residence only

If you qualify, USDA mortgage rates are often as low as VA mortgage rates.

4. Conventional 97 loans: 3% down payment

Offered by Fannie Mae and Freddie Mac, the Conventional 97 is a conventional mortgage tailored for first-time home buyers.

• Minimum down payment of 3%
• At least one borrower must be a first-time home buyer
• Private mortgage insurance is required but can be canceled once 20% equity is reached
• Often have stricter credit score and debt-to-income ratio requirements than FHA loans

5. HomeReady and Home Possible mortgage: 3% down

The HomeReady and Home Possible mortgages are two other conventional loan programs with 3% down payment requirements. While HomeReady is backed by Fannie Mae and Home Possible by Freddie Mac, they are both designed for lower-income and multigenerational households. But all home buyers are welcome to apply.

Home buyers using either loan program get access to discounted mortgage rates and reduced mortgage insurance premiums. Another big benefit is that you can use the income of boarders and other household residents to help meet the lender’s household income requirements.

Keep in mind that you will likely be required to complete a homebuyer education course during the application process.

First-time home buyer down payment calculator

Determining the right first-time home buyer down payment can be tricky. Our calculator can help you understand how different down payment amounts affect your mortgage loan, monthly payments, and overall costs.

Click here to access our down payment calculator.

Use this tool to:

• Estimate monthly mortgage payments based on various down payment amounts
• See how mortgage insurance impacts your costs
• Compare different loan programs and their down payment requirements

Make informed decisions about your home purchase by exploring different scenarios with our user-friendly down payment calculator.

Other home buying costs to consider

A down payment isn’t the only out-of-pocket cost for first-time home buyers. You also need to pay for closing costs.

• Closing costs cover all the fees associated with setting up your loan — from the lender’s fees to the appraisal, credit report, title fees, and more
• Closing costs are typically around 2% to 5% of the loan amount. (Although, it’s rare for them to be as high as 5% unless the loan is quite small)
• This means you should budget for at least 3% to 4% of the loan amount in cash, on top of your down payment budget

Down payment and closing costs example

For example, say you’re buying a home with a sales price of $400,000 and plan to make a 5% down payment. You should include around 4% for closing costs in your estimate to make sure you’ve saved enough for your total out-of-pocket cost.

• Home price: $400,000
• 5% down payment: $20,000
• Loan amount: $380,000
• 4% for closing costs: $15,200
• Total savings needed: $35,200

It’s important to budget for closing costs when you’re planning to buy a home. Otherwise, your down payment savings could take a big hit when you realize you need to use them to pay for closing costs, too.

However, as we explore below, there are a variety of programs to assist first-time buyers with down payments, closing costs, and financing.

First-time home buyer down payment FAQ

Find a low down payment loan that works for you 

First-time home buyers have lots of options when it comes to making a down payment.

Research your home loan options thoroughly to minimize your out-of-pocket costs, as many require just 0% to 3% down. Then make sure you find a participating mortgage lender who offers the home loan program you need.

Don’t forget to look into down payment assistance options near you. Help is available for first-time home buyers who know where to look for it.