Most first-time homebuyers can put down less than 20 percent, and some programs let you put down 3 percent or even nothing

The idea that you need 20 percent down to buy a house is the biggest myth in homebuying. Most first-time buyers put down between 3 and 10 percent. If you have a down payment saved, you can use it. If you don't, several real paths exist—they just come with different costs and requirements.

The amount you put down affects your monthly payment, your interest rate, and whether you'll pay mortgage insurance. A smaller down payment means a larger loan, which means higher monthly costs. But it also means you can buy sooner instead of saving for years. The trade-off is real, and it depends on your situation.

Key Takeaways

  • Federal Housing Administration (FHA) loans let first-time buyers put down as little as 3.5 percent, and you don't need perfect credit to may have access to.
  • Conventional loans with 3 percent down exist through programs like HomeReady and Home Possible, though they require mortgage insurance until you reach 20 percent equity.
  • VA loans (for military members and veterans) and USDA loans (for rural properties) can require zero down payment.
  • Mortgage insurance protects the lender if you default, costs 0.5 to 1.5 percent of your loan annually, and can be removed once you own 20 percent of the home's value.
  • Your down payment, credit score, debt-to-income ratio, and savings reserves all factor into whether a lender will approve you and what rate you'll receive.

How down payment size changes your monthly cost

A smaller down payment means you borrow more money, and you pay interest on every dollar you borrow. On a $300,000 house, putting down 3 percent ($9,000) instead of 20 percent ($60,000) means borrowing an extra $51,000. Over a 30-year loan at 7 percent interest, that difference adds roughly $340 to your monthly payment before mortgage insurance.

Mortgage insurance is the second cost. If you put down less than 20 percent on a conventional loan, the lender requires you to carry mortgage insurance. This typically costs between 0.5 and 1.5 percent of your loan amount per year, paid monthly as part of your mortgage bill. On a $291,000 loan (the $300,000 house minus your $9,000 down payment), that's roughly $120 to $360 per month depending on your credit score and the loan type.

You can remove mortgage insurance once you own 20 percent of the home's value—either by paying down the principal or by the home appreciating. With an FHA loan, the insurance stays for the life of the loan if you put down less than 10 percent, so that's a permanent cost to factor in.

FHA loans: the most common path for first-time buyers with little saved

An FHA loan is backed by the Federal Housing Administration, which means the government insures the lender against your default. This lets lenders approve buyers who might not may have access to for a conventional loan. You can put down as little as 3.5 percent, and your credit score can be as low as 580 (though 640 or higher gets you better rates).

The trade-off is mortgage insurance. FHA loans require an upfront mortgage insurance premium (usually 1.75 percent of the loan amount, paid at closing or rolled into your loan) plus an annual premium of 0.55 to 0.8 percent depending on your down payment and loan size. If you put down less than 10 percent, you pay this annual premium for the entire 30-year loan.

FHA loans have limits on how much you can borrow, and the limit varies by county. In lower-cost areas it might be $420,000; in expensive markets it can reach $1.2 million or more. You'll also need to show that you have cash reserves after closing—usually two months of mortgage payments in the bank.

Conventional loans with 3 percent down

Fannie Mae's HomeReady and Freddie Mac's Home Possible are conventional loan programs designed for first-time buyers. Both let you put down 3 percent instead of the traditional 20 percent. Your credit score needs to be at least 620, though 640 or higher gets better rates.

These loans also require mortgage insurance, but it can be removed once you reach 20 percent equity. That's different from FHA, where insurance is permanent if you put down less than 10 percent. The annual mortgage insurance premium typically runs 0.5 to 1.2 percent of your loan amount.

HomeReady and Home Possible have higher debt-to-income limits than traditional conventional loans, meaning you can carry more existing debt and still may have access to. They also count non-traditional credit (like utility payments or rent history) if you don't have a long credit file. Loan limits follow conventional limits, which are higher than FHA in most places—$766,550 for a single-family home in 2024, though limits vary by county.

VA and USDA loans: zero down payment options

If you're a military member, veteran, or surviving spouse, a VA loan requires zero down payment. The Department of Veterans Affairs guarantees part of the loan, so lenders approve buyers with less-than-perfect credit and no down payment saved. You do pay a funding fee (1.4 to 3.6 percent of the loan, depending on your military branch and whether you've used a VA loan before), but this can be rolled into your loan amount.

USDA loans are for rural properties and are backed by the U.S. Department of Agriculture. They also require zero down payment and are open to buyers in designated rural areas with household income at or below 115 percent of the area median. Like VA loans, USDA loans have a may provide fee (1 percent of the loan amount) that can be included in your loan.

Both programs have no mortgage insurance requirement, which saves you hundreds per month compared to FHA or conventional loans with a small down payment. The trade-off is that VA loans are limited to may be able to access military members, and USDA loans are limited to rural properties and specific income levels.

What lenders actually look at beyond your down payment

Your down payment is one piece of the approval puzzle. Lenders also examine your credit score, debt-to-income ratio, employment history, and cash reserves. A 3 percent down payment with a 750 credit score and stable income will get approved faster and at a better rate than a 10 percent down payment with a 580 credit score and recent job changes.

Debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. Most lenders want this below 43 percent, though some programs (like HomeReady) allow up to 50 percent. If you earn $5,000 per month and have $1,500 in existing debt payments (car, student loans, credit cards), your ratio is 30 percent. Adding a $1,200 mortgage payment would bring you to 54 percent, which would disqualify you on most conventional loans.

Cash reserves matter too. Lenders want to see that you can cover your mortgage if you lose income temporarily. Most require two to six months of mortgage payments in savings after you close. Some programs are more flexible, especially if you're putting down more than 5 percent.

Down payment information programs from states and nonprofits

Many states, cities, and nonprofits offer down payment information grants or forgivable loans. These are separate from the mortgage itself—they're additional money to help you reach your down payment goal. Some are grants (you don't repay them), and some are forgivable loans (you repay them only if you sell the house within a certain period).

These programs vary widely by location and change frequently. Some require you to take a homebuyer education course. Others have income limits or restrict the price of the home you can buy. A few are tied to specific loan types—for example, some only work with FHA loans, while others work with any loan type.

Your lender or a local housing counselor can tell you what's available in your area. HUD-approved housing counselors (found through HUD.gov or by calling 1-800-569-4287) know the programs in your region and can walk you through the process at no cost.

Frequently Asked Questions

What happens if I put down less than 3 percent?

Most lenders won't go below 3 percent on conventional loans. FHA goes to 3.5 percent. VA and USDA loans allow zero down, but they have specific may be able to access requirements. If you have less than 3 percent saved, down payment information programs or borrowing from family are your main options.

Can I borrow my down payment from family?

Yes, but with conditions. Most lenders require a gift letter stating the money is a gift, not a loan you have to repay. The gift letter must be signed by both you and the family member. Some lenders limit how much of your down payment can be a gift (usually allowing 100 percent), while others require you to contribute at least 1 to 5 percent from your own funds.

Does a bigger down payment always mean a better interest rate?

Usually, yes. A larger down payment means less risk for the lender, so they typically offer lower rates. The difference between 3 percent and 20 percent down might be 0.25 to 0.5 percent in interest rate. Over 30 years, that adds up. But your credit score, debt-to-income ratio, and the current market also affect your rate, so the relationship isn't automatic.

When can I remove mortgage insurance?

On conventional loans, you can request removal once you reach 20 percent equity (either through payments or home appreciation). On FHA loans with less than 10 percent down, mortgage insurance is permanent—you can't remove it. If you put down 10 percent or more on an FHA loan, insurance drops after 11 years.

What if I don't have any down payment saved?

VA and USDA loans require zero down if you're may be able to access. FHA requires 3.5 percent, which you might cover through down payment information programs, a gift from family, or a personal loan. Some nonprofits also offer matched savings programs where they contribute toward your down payment if you save a certain amount.