The down payment amount depends on the loan type, not a fixed rule

There is no single down payment amount that works for everyone. What you need depends on which loan program you use, your credit history, and the price of the home. A conventional loan might require 3 to 20 percent of the purchase price, while an FHA loan can go as low as 3.5 percent. VA loans and USDA loans in some cases require zero down. The lender you choose, not a government mandate, sets the minimum.

The down payment is the cash you hand over at closing. The rest of the home's price is borrowed through the mortgage. A larger down payment means a smaller loan, lower monthly payments, and often a better interest rate. A smaller down payment means you borrow more, pay more interest over time, and usually pay mortgage insurance on top of your monthly payment.

Key Takeaways

  • Conventional loans typically require 3 to 20 percent down, with 20 percent avoiding mortgage insurance entirely.
  • FHA loans allow down payments as low as 3.5 percent and accept lower credit scores, but charge mortgage insurance for the life of the loan.
  • VA and USDA loans may require zero down if you meet the program's other requirements, though closing costs still explore.
  • The down payment amount you choose affects your monthly payment, interest rate, and whether you pay mortgage insurance.
  • Closing costs, which are separate from the down payment, typically run 2 to 5 percent of the home price and must be paid at signing.

Conventional loans and the 20 percent benchmark

A conventional loan is a mortgage backed by a private lender, not a government agency. Most conventional loans require a down payment between 3 and 20 percent of the home price. If you put down 20 percent or more, you avoid paying private mortgage insurance (PMI), which protects the lender if you stop paying. If you put down less than 20 percent, PMI gets added to your monthly payment until you reach 20 percent equity in the home.

The 20 percent figure is not a legal requirement—it is straightforward the threshold where PMI disappears. Many lenders will accept 3 to 5 percent down on a conventional loan if your credit score is strong (usually 620 or higher) and your debt-to-income ratio is low. PMI typically costs 0.5 to 1.5 percent of the loan amount per year, split into monthly payments. On a $300,000 home with 5 percent down, PMI might add $100 to $200 to your monthly payment.

FHA loans and lower down payment thresholds

An FHA loan is backed by the Federal Housing Administration and is designed for buyers with lower credit scores or less cash saved. FHA loans allow down payments as low as 3.5 percent of the purchase price. You can use an FHA loan with a credit score as low as 580, though some lenders require 640 or higher. The trade-off is that FHA loans charge mortgage insurance no matter how much you put down.

FHA mortgage insurance comes in two forms: an upfront premium (usually 1.75 percent of the loan amount, often rolled into your loan) and an annual premium (0.55 to 0.8 percent of the loan amount per year, added to your monthly payment). Unlike PMI on conventional loans, FHA mortgage insurance does not disappear when you reach 20 percent equity. It stays for the life of the loan unless you refinance into a conventional loan later. On a $300,000 home with 3.5 percent down, the upfront insurance alone adds roughly $5,250 to what you owe.

VA and USDA loans with zero down

If you are a veteran, active-duty service member, or surviving spouse, a VA loan may let you buy with zero down. VA loans are may provide by the Department of Veterans Affairs and have no down payment requirement, no mortgage insurance, and no maximum loan amount (though lenders set their own caps). You do pay a one-time VA funding fee, usually 1.4 to 3.6 percent of the loan amount, which can be rolled into the loan or paid upfront.

A USDA loan is for rural and some suburban properties and also requires zero down if you meet income limits (usually 115 percent of the area median income). USDA loans charge an upfront may provide fee (1 percent of the loan) and an annual fee (0.35 percent), both typically rolled into the loan. Both programs are competitive and have specific property and location rules, so not every home qualifies.

How down payment size affects your monthly cost

The down payment you choose directly changes what you pay each month. On a $300,000 home at 7 percent interest over 30 years, putting down 3 percent ($9,000) means borrowing $291,000. Putting down 20 percent ($60,000) means borrowing $240,000. The difference in principal alone is $51,000, which translates to roughly $340 less per month in mortgage payments alone. Add in the cost of mortgage insurance on the smaller down payment, and the gap widens further.

However, a larger down payment also means more cash out of pocket today. If you have $20,000 saved and a home costs $300,000, putting 20 percent down ($60,000) is not an option. You would need to put down what you have (6.7 percent), accept mortgage insurance, or look for a less expensive home. The right down payment is the one that fits your savings, your timeline, and the loan program you may have access to for.

Closing costs are separate from the down payment

Closing costs are fees paid at signing and are separate from the down payment. They typically run 2 to 5 percent of the home price and cover things like the appraisal, title search, homeowners insurance, property taxes, and lender fees. On a $300,000 home, closing costs might be $6,000 to $15,000. Some lenders allow you to roll closing costs into the loan, but that increases what you borrow and what you pay in interest.

When you plan your down payment, budget for closing costs separately. If you have $30,000 saved and want to put 10 percent down on a $300,000 home ($30,000), you would have nothing left for closing costs. In that case, you would need to ask the seller to cover some closing costs, roll them into the loan, or save more before buying. Lenders can tell you the exact closing costs for your loan once you are in the process process.

Down payment information programs and gift funds

If you do not have enough saved, some programs help cover the down payment. Nonprofit organizations, state housing agencies, and some employers offer down payment information grants or forgivable loans. These vary widely by location and income level. Some programs require you to take a homebuyer education course first. Others have income caps or restrict the types of homes you can buy.

You can also use gift funds from family members to cover part or all of the down payment. Most lenders allow this, but they require a signed letter from the gift-giver stating that the money is a gift, not a loan you have to repay. The lender wants to know your actual debt obligations, so they need proof the money is not adding to what you owe. Some programs, like VA loans, have no limit on gift funds. Others, like conventional loans, may require you to contribute a small percentage of your own money.

Frequently Asked Questions

Can I put down less than 3 percent on a conventional loan?

Some lenders offer 1 to 2 percent down on conventional loans, but they are rare and require excellent credit (usually 740 or higher) and low debt. These loans carry higher interest rates and higher PMI costs. FHA loans at 3.5 percent are usually a better option if you have limited savings.

What happens if I put down more than 20 percent?

You avoid PMI entirely and borrow less, which lowers your monthly payment and total interest paid over the life of the loan. Some lenders offer slightly better interest rates for larger down payments, though the difference is usually small. There is no penalty for putting down more.

Can I borrow money for the down payment?

Most lenders do not allow you to borrow the down payment from another lender or credit card. They want to see that you have saved the money yourself or received it as a gift. Borrowing for the down payment increases your debt-to-income ratio and makes you look riskier to the lender.

Do I have to put down the same percentage on every type of loan?

No. Each loan type has its own rules. You might put down 3.5 percent on an FHA loan or zero on a VA loan, but conventional loans typically require 3 to 20 percent. The loan program you choose determines the down payment options available to you.

What if I save more after I start the loan process?

You can usually increase your down payment up until closing. Tell your lender as soon as you have more cash available. A larger down payment at closing lowers your loan amount and can improve your interest rate, though the lender may need to re-run your approval.