The down payment you need depends on the loan type, not a fixed rule
There is no single down payment amount required for every first-time buyer. The amount you put down depends on which loan program you use, your credit score, and sometimes your location. Conventional loans typically require 3 to 20 percent of the home's purchase price. Federal Housing Administration (FHA) loans allow as little as 3.5 percent. Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans in rural areas can require zero percent down.
The lower your down payment, the more you borrow and the higher your monthly payment becomes. You also pay mortgage insurance if you put down less than 20 percent on a conventional loan, which adds to your monthly cost. Understanding what each loan type requires helps you figure out what you can actually afford to save.
Key Takeaways
- Conventional loans require 3 to 20 percent down, with 20 percent avoiding mortgage insurance costs.
- FHA loans allow 3.5 percent down and are designed for first-time buyers with lower credit scores.
- VA and USDA loans can require zero percent down if you meet the program requirements.
- Putting down less than 20 percent on a conventional loan means paying private mortgage insurance, which increases your total monthly payment.
- Your down payment amount affects not just the upfront cost but also your interest rate and how much you borrow overall.
Conventional loans: 3 to 20 percent down
A conventional loan is a mortgage not backed by a federal agency. Most conventional loans require a minimum down payment of 3 percent, though some lenders require 5 or 10 percent. The more you put down, the better your interest rate typically is and the lower your monthly payment.
If you put down less than 20 percent on a conventional loan, you pay private mortgage insurance (PMI). This is an extra monthly fee that protects the lender if you stop paying. PMI usually costs between 0.5 and 1 percent of your loan amount per year, added to your monthly payment. On a $300,000 home with 10 percent down, PMI might add $150 to $300 per month. You can stop paying PMI once you reach 20 percent equity in the home, which happens through a combination of paying down the loan and the home gaining value.
FHA loans: 3.5 percent down with mortgage insurance built in
An FHA loan is backed by the Federal Housing Administration and is designed for first-time buyers and people with credit scores below 620. The minimum down payment is 3.5 percent of the purchase price. FHA loans are easier to get than conventional loans if your credit is not perfect, but they require mortgage insurance no matter how much you put down.
FHA loans charge two types of mortgage insurance: an upfront fee paid at closing (usually 1.75 percent of the loan amount) and an annual premium added to your monthly payment (usually 0.55 to 0.8 percent per year). Unlike PMI on conventional loans, FHA mortgage insurance does not go away when you reach 20 percent equity. You pay it for the life of the loan if you put down less than 10 percent, or for at least 11 years if you put down 10 percent or more.
VA loans: Zero down for may be able to access veterans and service members
If you are a current or former member of the military, a VA loan requires zero percent down. You must have a Certificate of may be able to access from the Department of Veterans Affairs, which you can request online through the VA website or through your lender. VA loans do not require mortgage insurance, which saves you hundreds of dollars per month compared to other loan types.
VA loans do charge a funding fee, which is a one-time cost paid at closing (usually 1.5 to 3.3 percent of the loan amount, depending on your military branch and whether you have a service-connected disability). This fee can be rolled into your loan, so you do not have to pay it upfront. VA loans also have no maximum loan amount in most cases, and no prepayment penalty if you pay off the loan early.
USDA loans: Zero down in rural areas
A USDA loan is backed by the United States Department of Agriculture and is designed for rural homebuyers with low to moderate income. The down payment is zero percent if the property is in an may be able to access rural area. You must meet income limits (which vary by county) and have a credit score of at least 580, though 640 or higher improves your chances.
USDA loans charge a may provide fee (usually 1 to 3.5 percent of the loan amount) and an annual mortgage insurance premium (0.35 percent per year). Like FHA loans, USDA mortgage insurance does not go away. The property must be a single-family home used as your primary residence, and you cannot use it as a rental or investment property.
What affects how much down payment you can afford
Your down payment comes from your savings, not from borrowed money. Lenders want to see that you have saved the money yourself and that you have cash reserves left over after closing. Most lenders require you to have 2 to 6 months of mortgage payments in savings after you close, depending on the loan type and your credit profile.
Your debt-to-income ratio also matters. This is the total of all your monthly debt payments (car loans, credit cards, student loans, the new mortgage) divided by your gross monthly income. Most lenders want this ratio to be 43 percent or lower. A larger down payment lowers your monthly mortgage payment, which improves your debt-to-income ratio and makes you more likely to be approved.
Closing costs are separate from your down payment and typically run 2 to 5 percent of the home's purchase price. These include appraisal fees, title insurance, inspections, and lender fees. You need to budget for these in addition to your down payment.
How to decide what down payment makes sense for you
Start by figuring out how much you can save without leaving yourself vulnerable. If you have no emergency fund, putting every dollar into a down payment leaves you one car repair away from missing a mortgage payment. A safer approach is to save your down payment while also building 3 to 6 months of living expenses in a separate emergency fund.
Next, compare the total cost of different down payment amounts. A 3 percent down payment on a $350,000 home means borrowing $339,500 instead of $280,000. The extra $59,500 in borrowed money, plus mortgage insurance, could add $400 to $600 per month to your payment. A 10 percent down payment ($35,000) might add $200 to $300 per month instead. Run the numbers with a mortgage calculator to see what your actual monthly payment would be at different down payment levels.
Consider how long you plan to stay in the home. If you are likely to move within 5 to 7 years, a lower down payment might make sense because you will not stay long enough to build equity. If you plan to stay 15 years or longer, a larger down payment reduces the total interest you pay over the life of the loan.
Frequently Asked Questions
Can I borrow my down payment from family or friends?
Most lenders allow a gift from a family member, but not a loan. If you borrow the money, you have to disclose it as a debt, which increases your debt-to-income ratio and may disqualify you. If a family member gives you the money as a gift with no expectation of repayment, the lender usually requires a signed gift letter stating that it is a gift, not a loan.
What if I only have 2 percent saved?
Some lenders offer 2 percent down conventional loans, though they are less common and usually require a higher credit score (680 or above). FHA loans at 3.5 percent down are more widely available. If you have less than 2 percent, you could wait and save more, look into down payment information programs through your city or county, or explore whether you meet the requirements for a VA or USDA loan.
Does a larger down payment always mean a lower interest rate?
Usually yes, but not always by much. A 20 percent down payment might get you a 0.25 to 0.5 percent lower interest rate than a 3 percent down payment, depending on your credit score and the lender. The bigger savings from a larger down payment come from avoiding mortgage insurance, not from the interest rate alone.
What happens if the home appraises for less than the purchase price?
If the appraisal comes in lower than what you agreed to pay, you still owe your down payment. The lender will only finance up to the appraised value, so you either have to pay the difference in cash, renegotiate the price with the seller, or walk away and lose your earnest money deposit.