What first-time buyers typically put down
Down payment amounts vary widely depending on the loan type you choose, not on what lenders think is "ideal." A conventional loan usually requires between 3% and 20% of the home's purchase price. An FHA loan (Federal Housing Administration) typically requires 3.5%. A VA loan (for may be able to access military members) often requires 0% down. A USDA loan (for rural properties) also often requires 0% down.
The percentage you put down directly affects your monthly payment, how much interest you pay over the life of the loan, and whether you'll pay mortgage insurance. A larger down payment lowers your monthly cost and removes the insurance requirement faster. A smaller down payment means you keep more cash on hand right now, but you'll pay more overall.
There is no single "right" amount. The right amount is the one that fits your financial situation without leaving you unable to cover closing costs, inspections, appraisals, and the first few months of homeownership expenses.
Key Takeaways
- FHA loans allow down payments as low as 3.5%, while conventional loans typically start at 3% but often require 5% to 10% for better rates.
- VA and USDA loans may require no down payment at all if you meet the program requirements.
- Putting down less than 20% on a conventional loan means you'll pay mortgage insurance (PMI) until you reach 20% equity in the home.
- Your down payment amount affects your interest rate, monthly payment, and total cost over the life of the loan.
- Closing costs, inspections, and appraisals are separate from your down payment and typically run 2% to 5% of the purchase price.
How down payment size affects your monthly payment and interest rate
A larger down payment lowers the amount you borrow, which directly reduces your monthly mortgage payment. On a $300,000 home, putting down 10% instead of 5% means borrowing $30,000 less. Over a 30-year loan at current rates, that difference translates to roughly $150 to $200 less per month, depending on your interest rate.
Down payment size also affects the interest rate lenders offer you. A larger down payment signals lower risk to the lender, so they often offer a lower rate. The difference between a 3% down payment and a 20% down payment can be 0.25% to 0.5% in interest rate, which compounds significantly over 30 years.
However, a larger down payment also means less liquid cash available for emergencies, home repairs, or other financial needs. Many financial advisors suggest keeping 3 to 6 months of expenses in savings separate from your down payment fund.
Mortgage insurance and when it goes away
Mortgage insurance (PMI) is required on conventional loans when you put down less than 20%. This insurance protects the lender if you default, but you pay the premium—typically 0.5% to 1.5% of your loan amount annually, added to your monthly payment.
PMI does not stay forever. Once you reach 20% equity in your home (either through payments or home appreciation), you can request to have it removed. Some loans allow automatic removal once you hit 20% equity. The timeline depends on your down payment, interest rate, and home value changes. With a 10% down payment, you might reach 20% equity in 8 to 12 years. With a 5% down payment, it could take 15 to 20 years.
FHA loans work differently. FHA mortgage insurance is required for the life of the loan if you put down less than 10%. If you put down 10% or more on an FHA loan, the insurance drops after 11 years.
Down payment requirements by loan type
| Loan Type | Typical Down Payment | Mortgage Insurance | Who Qualifies |
|---|---|---|---|
| Conventional | 3% to 20% | Required below 20% | Most buyers with decent credit |
| FHA | 3.5% minimum | Required for life of loan if under 10% down | First-time buyers, lower credit scores accepted |
| VA | 0% (no down payment required) | Not required | Active military, veterans, surviving spouses |
| USDA | 0% (no down payment required) | Required but no down payment needed | Rural property buyers meeting income limits |
Saving for your down payment and closing costs
Your down payment is only part of the upfront cost. Closing costs typically run 2% to 5% of the purchase price and cover appraisals, title insurance, inspections, attorney fees, and lender fees. On a $300,000 home, closing costs could range from $6,000 to $15,000.
Some loan programs allow sellers to cover part or all of closing costs, which reduces what you need to bring to closing. Conventional loans typically allow sellers to cover up to 3% of closing costs. FHA loans allow up to 6%. Ask your lender what's possible in your situation.
Many first-time buyers save for down payment and closing costs together, then discover they're short on cash for both. A realistic savings plan accounts for both amounts separately. If you're targeting a 5% down payment on a $300,000 home, you need $15,000 for down payment plus $6,000 to $15,000 for closing costs—a total of $21,000 to $30,000 before you own the home.
Down payment information programs and gifts
Some states, counties, and nonprofits offer down payment information grants or forgivable loans. These vary by location and income level. Your lender can tell you which programs serve your area, or you can contact your local housing authority to ask what's available.
Family gifts are allowed on most loans. Conventional loans, FHA loans, and VA loans all permit gift funds from family members. The lender will require a signed gift letter stating the money is a gift, not a loan you'll repay. Some programs require the gift-giver to have a family relationship to you; others do not.
Borrowed money does not count as a down payment. If you take out a personal loan or credit card advance to fund your down payment, lenders will see the new debt and may deny your mortgage or offer a worse rate. Down payment funds should come from savings, gifts, or information programs—not new debt.
What happens if you can't save 20% down
Most first-time buyers do not put down 20%. The median down payment for first-time buyers is typically between 6% and 8%, according to industry data. Putting down less than 20% is normal, not a failure.
If you put down 3% to 10%, you'll pay mortgage insurance, but you'll also build equity from day one. As your home value rises and you make payments, you'll reach 20% equity faster than you might expect. At that point, you can refinance to remove the insurance or request removal if your lender allows it.
If saving for a down payment feels impossible right now, explore whether you may have access to for a VA loan (0% down), a USDA loan (0% down for rural properties), or down payment information in your area. These paths exist specifically because saving 20% is not realistic for many people.
Frequently Asked Questions
Can I use a 401(k) or IRA for my down payment?
Some retirement accounts allow withdrawals for first-time home purchases. A traditional or Roth IRA allows a one-time withdrawal of up to $10,000 for a first-time home purchase. A 401(k) may allow a loan against your balance, though you'll repay it with interest. Withdrawals before age 59½ typically trigger taxes and penalties unless you may have access to for the first-time buyer exception. Speak with a tax professional before withdrawing.
What if I inherit money right before closing?
Inherited funds count as your own money and can be used for a down payment. You'll need to document the source (the will, inheritance statement, or bank deposit showing the transfer). Lenders verify the source of all down payment funds to prevent fraud, so be prepared to show paperwork.
Does a larger down payment may provide loan approval?
No. Lenders look at income, credit score, debt-to-income ratio, and employment history alongside down payment size. A large down payment helps, but it does not override other risk factors. If your debt is too high or your credit score too low, a bigger down payment may not be enough to get approved.
Can I put down less than the lender's minimum?
No. Lenders set minimum down payments based on the loan program (3% for conventional, 3.5% for FHA, 0% for VA and USDA). You cannot negotiate below the program minimum. You can only choose a different loan type if one allows a lower down payment.
What if my down payment savings falls short right before closing?
Contact your lender when ready. Do not borrow the shortfall through a personal loan or credit card—lenders will see the new debt and may deny the mortgage. Ask whether a family member can gift the difference, whether the seller will cover more closing costs, or whether you can delay closing to save more. Closing can usually be postponed if both buyer and seller agree.