You can buy a home with less than 20 percent down, and some programs let you buy with 3 percent or even zero percent down

The short answer: no, you do not need a 20 percent down payment to buy a home. Many first-time buyers put down 3 to 5 percent, and several loan types allow you to put down nothing at all. The trade-off is that a smaller down payment means you pay more interest over the life of the loan and you will have to pay an extra monthly fee called mortgage insurance until you build up enough equity in the home.

The amount you put down depends on which type of loan you get and what the lender requires. A conventional loan (the most common type, sold to investors after the bank originates it) typically requires at least 3 percent down. Government-backed loans like FHA, VA, and USDA loans have their own rules and often allow smaller down payments or none at all.

Key Takeaways

  • Conventional loans usually require a minimum of 3 percent down, while FHA loans require 3.5 percent and VA and USDA loans may require zero percent.
  • When you put down less than 20 percent, you pay mortgage insurance — an extra monthly cost that protects the lender if you stop paying.
  • A smaller down payment means a larger loan amount, so you pay more interest overall, but it lets you buy sooner if you do not have 20 percent saved.
  • First-time buyer programs in your state or county may offer down payment help, grants, or favorable loan terms you would not get otherwise.
  • The lowest down payment option for you depends on your income, credit score, and whether you meet the rules for government-backed loans.

What happens when you put down less than 20 percent

When your down payment is smaller than 20 percent of the home's price, the lender requires you to pay mortgage insurance. This is not insurance that protects you — it protects the lender. If you stop making payments and the lender has to foreclose and sell the home, mortgage insurance covers part of their loss.

The cost of mortgage insurance depends on how much you put down, your credit score, and the type of loan. On a conventional loan, mortgage insurance typically costs between 0.5 and 1.5 percent of your loan amount per year, added to your monthly payment. On an FHA loan, the cost is usually higher — between 0.8 and 1.6 percent per year, plus an upfront fee of 1.75 percent of the loan amount that gets rolled into what you owe.

You can stop paying mortgage insurance on a conventional loan once you have paid down the loan to 80 percent of the home's original value (or 78 percent under certain conditions). On an FHA loan, you may have to pay it for the entire loan term if you put down less than 10 percent, or for 11 years if you put down 10 percent or more.

Conventional loans: 3 to 5 percent down is typical

A conventional loan is a mortgage that is not backed by the government. The lender sells it to investors (usually Fannie Mae or Freddie Mac), so the lender has strict rules about who can borrow and how much risk they will take. Most conventional loans require a minimum down payment of 3 percent, though some lenders require 5 percent or more.

With a conventional loan, your credit score matters more than with government-backed loans. Most lenders want a score of at least 620, though 640 or higher usually gets you better interest rates. You will also need to show that your monthly debt payments (including the new mortgage) do not exceed 43 to 50 percent of your gross monthly income, depending on the lender.

Conventional loans do not have an upfront insurance fee like FHA loans do. Instead, you pay mortgage insurance monthly until you reach 20 percent equity. This can make a conventional loan cheaper over time if you plan to stay in the home long enough to build that equity.

FHA loans: 3.5 percent down, easier credit requirements

An FHA loan is backed by the Federal Housing Administration, which means the government promises to cover the lender's loss if you default. Because the government is taking on that risk, FHA loans allow lower down payments and are more forgiving about credit scores and income.

FHA loans require a minimum down payment of 3.5 percent. Your credit score can be as low as 580 to may have access to, though scores below 620 may limit which lenders will work with you. FHA also allows higher debt-to-income ratios than conventional loans — up to 50 percent in some cases.

The catch is that FHA loans charge both an upfront mortgage insurance fee (1.75 percent of the loan amount, rolled into what you owe) and an annual mortgage insurance premium (0.8 to 1.6 percent per year). If you put down less than 10 percent, you pay mortgage insurance for the entire 30-year loan term. If you put down 10 percent or more, you pay it for 11 years.

VA and USDA loans: zero percent down if you may have access to

If you are a military service member, veteran, or surviving spouse, you may be able to get a VA loan with zero percent down. VA loans are may provide by the Department of Veterans Affairs and have no mortgage insurance requirement. Instead, you pay a one-time funding fee (between 1.4 and 3.6 percent of the loan amount, depending on your service history and down payment), which can be rolled into the loan.

VA loans have no credit score minimum, though most lenders require a score of at least 580 to 620. There is no debt-to-income limit, though lenders typically want to see that you can afford the payment. You do not need to be a first-time buyer to use a VA loan.

If you live in a rural area and meet income limits, a USDA loan may let you buy with zero percent down. USDA loans are backed by the U.S. Department of Agriculture and are designed to help people buy homes in areas with populations under 35,000. Like VA loans, USDA loans have no mortgage insurance, but you pay a may provide fee (1 percent upfront, plus 0.35 percent annually) that protects the lender.

First-time buyer programs that help with down payments

Many states, counties, and cities offer down payment help for first-time buyers. These programs may offer grants (money you do not have to repay), forgivable loans (loans that disappear if you stay in the home for a set number of years), or favorable loan terms. The programs vary widely by location, so what is available to you depends on where you want to buy.

To find programs in your area, start by contacting your state housing finance agency (search "[your state] housing finance agency" online) or calling 211 to be connected to local housing resources. Many programs have income limits, so you will need to know your household income. Some programs also require you to take a homebuyer education course, which teaches you about mortgages, budgeting, and home maintenance.

Down payment help programs often work alongside conventional, FHA, VA, or USDA loans. For example, you might use an FHA loan for 3.5 percent down and a state grant for another 3 percent, reducing your out-of-pocket cost to zero. The program will tell you which loan types it works with and whether there are any restrictions on the home price or location.

How much down payment actually costs you over time

Putting down 3 percent instead of 20 percent means you borrow more money, so you pay more interest. On a $300,000 home, putting down 3 percent instead of 20 percent means borrowing an extra $51,000. At a 7 percent interest rate over 30 years, that extra borrowing costs you roughly $120,000 more in interest and mortgage insurance combined.

However, that calculation assumes you keep the loan for 30 years. If you plan to sell or refinance in 7 to 10 years, the extra cost is much lower. You also have to weigh the cost of waiting to save 20 percent against the cost of buying sooner with a smaller down payment — if home prices are rising in your area, buying sooner may save you money even with the extra interest and insurance.

The real question is not whether you can afford the down payment, but whether you can afford the monthly payment. A smaller down payment means a larger monthly payment, so make sure you can comfortably cover the mortgage, property taxes, homeowners insurance, and mortgage insurance each month.

Frequently Asked Questions

Can I use a gift from family for my down payment?

Yes, most lenders allow down payment gifts from family members. You will need a gift letter stating that the money is a gift and does not need to be repaid. Some lenders require the gift-giver to have a relationship to you (parent, grandparent, sibling), while others allow gifts from anyone. Ask your lender what documentation they need.

What if I have bad credit but want to buy a home?

FHA loans are more forgiving of lower credit scores than conventional loans — you may be able to get an FHA loan with a score as low as 580. Some lenders also specialize in working with borrowers who have credit challenges. A larger down payment (5 to 10 percent) can also help offset a lower credit score by showing the lender you are serious about the purchase.

Does putting down more money lower my interest rate?

Usually yes, but not always by much. A larger down payment reduces the lender's risk, so they may offer a slightly lower rate. The difference is typically 0.25 to 0.5 percent. Compare loan offers from multiple lenders to see how much your rate changes with different down payment amounts.

Can I get a down payment loan instead of a grant?

Yes. Some programs offer forgivable loans, which work like a grant if you stay in the home for a set period (often 5 to 10 years). Others offer second mortgages at favorable rates. Ask your state housing finance agency or local housing authority what types of down payment help are available in your area.

What is the difference between a down payment and closing costs?

Your down payment is the money you put toward the home's purchase price. Closing costs are separate fees for things like the appraisal, title search, homeowners insurance, and loan origination — typically 2 to 5 percent of the loan amount. You need to save for both, though some programs and lenders can help with closing costs too.