Most first-time buyers can put down less than 20 percent, and some programs let you put down 3 percent or less

The idea that you need 20 percent down to buy a home is outdated. Most first-time buyers put down between 3 and 10 percent. Several loan types exist specifically to make lower down payments possible: FHA loans (Federal Housing Administration) allow 3.5 percent down, VA loans (for military members and veterans) often require zero down, and USDA loans (for rural properties) also allow zero down. Conventional loans—the kind not backed by a government agency—typically start at 3 percent down through first-time buyer programs.

The catch is that putting down less than 20 percent means you will pay mortgage insurance—an extra monthly fee that protects the lender if you stop paying. The lower your down payment, the higher this insurance costs. On a $300,000 home with 3 percent down, mortgage insurance might add $150 to $250 per month to your payment. With 10 percent down, it drops to roughly $75 to $150 per month. This insurance stays on your loan until you have paid enough of the principal that you own 20 percent of the home.

Whether you need a down payment at all depends on which loan type you use and whether you meet that program's requirements. A veteran with a VA loan does not need a down payment. A first-time buyer in a rural area with a USDA loan does not need one either. But if you are using a conventional loan or do not may have access to for a government-backed program, you will need some cash down—and the amount affects both your monthly payment and your total cost over the life of the loan.

Key Takeaways

  • FHA loans allow down payments as low as 3.5 percent and are the most common choice for first-time buyers with limited savings.
  • VA and USDA loans can require zero down payment if you meet military service or rural property requirements.
  • Putting down less than 20 percent triggers mortgage insurance, which adds $75 to $250+ per month depending on your down payment size.
  • Your down payment amount affects both your monthly payment and the total interest you pay over 15 or 30 years.
  • Lenders verify down payment funds come from your own savings or an allowed source like a gift from family, not from borrowed money.

How down payment size changes your monthly cost

A larger down payment lowers your monthly mortgage payment in two ways. First, you borrow less money, so the base payment is smaller. Second, you avoid or reduce mortgage insurance. On a $300,000 home at current interest rates, the difference between 3 percent down and 20 percent down is roughly $200 to $300 per month—money that adds up to tens of thousands of dollars over 30 years.

However, the math is not always "save more, put more down." If you have $30,000 in savings and the choice is between putting $9,000 down (3 percent on a $300,000 home) or $60,000 down (20 percent), you also have to consider what happens to the $21,000 you did not spend. If that money sits in a savings account earning 4 percent interest, you are earning roughly $840 per year. If your mortgage insurance costs $150 per month ($1,800 per year), you are losing money by putting down only 3 percent. But if you would spend that $21,000 on credit card debt at 18 percent interest, you are paying $3,780 per year—in which case putting down 3 percent and keeping your savings makes more sense.

The right down payment size depends on your full financial picture: how much you have saved, what other debts you carry, what your emergency fund looks like, and what interest rates are available to you. A mortgage lender can show you payment estimates for different down payment amounts so you can see the actual numbers for your situation.

Where down payment money can come from

Lenders require proof that your down payment comes from your own funds or from an allowed source. They do this by asking for bank statements covering the past 60 days and sometimes longer. They are looking for large deposits that appear suddenly—a sign that you borrowed the money, which violates the rules of most loan programs.

Money that counts toward your down payment includes savings accounts, checking accounts, money market accounts, and certificates of deposit (CDs). Retirement accounts like a 401(k) or IRA can sometimes be used, though there are tax consequences and some loan types restrict this. Stocks and bonds count if you sell them and deposit the proceeds into your bank account at least two days before closing (so the deposit shows on your bank statement).

Gifts from family members are allowed on most loan types, including FHA and conventional loans. The lender will ask the person giving the gift to sign a letter stating it is a gift, not a loan you have to repay. The money must be deposited into your account and sit there long enough to show on a bank statement. VA loans have stricter rules about gifts—some allow them, some do not, depending on the lender.

Money you cannot use includes loans from friends or family, credit card cash advances, personal loans, or borrowing against your car or other assets. If a lender discovers you borrowed your down payment, they can deny your loan or require you to wait several months and prove the borrowed money is paid off before they will lend to you.

Down payment information programs in your state or county

Many states, counties, and cities offer down payment information to first-time buyers. These programs come in two forms: grants (money you do not repay) and second mortgages (loans you repay, usually with no interest or a very low interest rate). Some programs cover the full down payment; others cover part of it. may be able to access usually depends on your income, the price of the home you are buying, and whether you are a first-time buyer.

The fastest way to find programs in your area is to contact your state housing finance agency. You can search for it by state name plus "housing finance agency" or visit the National Council of State Housing Agencies website. Your real estate agent or mortgage lender may also know about local programs, though they do not always mention them unless you ask.

Down payment information programs often have long waiting lists or run out of money partway through the year. Some reopen with new funding later. If you are told a program is closed, ask when it typically reopens and whether you can get on a waiting list. A few programs let you reserve funds if you are close to buying; others require you to be under contract on a home before you can explore.

The difference between down payment and closing costs

Down payment and closing costs are separate expenses, and many first-time buyers confuse them. Your down payment is the percentage of the home's price you pay upfront—3 percent, 10 percent, 20 percent, or whatever you and the lender agree on. Your closing costs are fees for the loan itself: appraisal, title search, title insurance, underwriting, attorney fees, and other services. Closing costs typically run 2 to 5 percent of the loan amount.

On a $300,000 home, if you put down 10 percent ($30,000), you are borrowing $270,000. Closing costs on that $270,000 loan might be $5,400 to $13,500. You owe both the down payment and the closing costs at closing—they do not overlap. Some down payment information programs cover closing costs too; others cover only the down payment. Some loan types let you roll closing costs into the loan amount so you do not have to pay them upfront, though this increases the amount you borrow and the interest you pay over time.

What happens if you do not have a down payment saved yet

If you have little or no savings, you have several options. The first is to wait and save. How long depends on your income and expenses. If you can save $500 per month, you will have $6,000 in a year—enough for a 3 percent down payment on a $200,000 home. If you can save $1,000 per month, you reach that same goal in six months. A mortgage lender can tell you what price range is realistic for your income and what down payment amount you could manage in a given timeframe.

The second option is to look for down payment information in your area. Some programs have no income limit; others are restricted to households below a certain income. A few programs are restricted to specific professions—teachers, nurses, or first responders, for example. Even if you do not think you may have access to, it is worth checking. The process process usually takes two to four weeks.

The third option is to increase your income or reduce your expenses so you can save faster. This might mean taking on extra work, selling items you no longer need, or cutting discretionary spending for a few months. The goal is to reach a down payment amount that lets you buy without stretching your budget so thin that you cannot afford the monthly payment, property taxes, insurance, and maintenance.

Frequently Asked Questions

Can I borrow my down payment from someone?

No. Lenders require proof that your down payment comes from your own savings or from a gift. If you borrow the money—even from family—and have to repay it, the lender will see the loan on your credit report or in your bank statements and will likely deny your process. Gifts must be documented with a signed letter from the person giving the money.

What if I only have 1 or 2 percent saved?

You can still buy a home. FHA loans allow 3.5 percent down, and some state or local down payment information programs cover the gap between what you have saved and what you need. You can also wait a few more months to save the additional 1 to 2 percent. A mortgage lender can show you what your payment would be with the down payment you have and help you decide whether to wait or use information.

Does my down payment have to be in my name?

Yes, the lender will verify that the money in your bank account is yours. If you are buying with a spouse or co-borrower, the money can be in either person's account or a joint account. Money in someone else's account does not count unless it is a documented gift, in which case it must be transferred to your account and appear on your bank statement before closing.

Can I use my 401(k) to pay my down payment?

Some loan types allow it, but there are tax penalties and restrictions. If you withdraw from a 401(k) before age 59½, you typically owe income tax plus a 10 percent early withdrawal penalty. Some plans allow loans against your balance instead of withdrawals, which avoids the penalty but requires you to repay the loan. Ask your plan administrator and your mortgage lender whether this option makes sense for your situation.

What if I put down 5 percent instead of 3 percent—does it save me money?

Yes, but the savings are modest. Mortgage insurance drops slightly, so your monthly payment decreases by roughly $30 to $50. Over 30 years, that is $10,800 to $18,000 in savings. Whether it is worth saving an extra 2 percent depends on how long it takes you to save that money and what you could do with the money in the meantime.