What Your Down Payment Actually Needs to Be

Your down payment is the cash you bring to closing, expressed as a percentage of the home's purchase price. If you buy a house for $300,000 and put down $60,000, that is a 20 percent down payment. The lender finances the rest through a mortgage.

The percentage you need depends on the loan type. Conventional loans typically require 3 to 20 percent down. FHA loans allow as little as 3.5 percent. VA loans (for military borrowers) often require zero down. USDA loans (for rural properties) also frequently require zero down. The lower your down payment, the higher your monthly payment and the more interest you pay over the life of the loan.

Your lender will tell you the minimum down payment they require before you even make an offer. This is not negotiable with the seller—it is a lender requirement. However, you can always put down more than the minimum.

Key Takeaways

  • Down payment percentage varies by loan type: conventional loans usually need 3 to 20 percent, FHA loans need 3.5 percent, and VA or USDA loans may require zero percent.
  • To calculate your down payment in dollars, multiply the home's purchase price by your target percentage (for example, $300,000 × 0.20 = $60,000).
  • A larger down payment lowers your monthly mortgage payment and the total interest you pay, but you need to keep enough cash in reserve for closing costs and emergencies.
  • Mortgage insurance (PMI on conventional loans, MIP on FHA loans) is required when your down payment is below a certain threshold, adding to your monthly cost.
  • Your lender sets the minimum down payment requirement based on the loan program and your credit profile, not the seller or the real estate agent.

The Basic Math: Purchase Price Times Your Percentage

The calculation itself is straightforward. Take the home's purchase price and multiply it by the down payment percentage you are aiming for.

If the house costs $250,000 and you want to put down 10 percent, the math is $250,000 × 0.10 = $25,000. If you want 20 percent, it is $250,000 × 0.20 = $50,000. The difference between those two scenarios is $25,000 in cash out of pocket, but it also changes your monthly payment by roughly $150 to $200 (depending on interest rates and loan length).

Write this number down. This is what you need to have saved, plus closing costs, before you can close on the house.

How Loan Type Changes Your Minimum Down Payment

Different loan programs have different floors. A conventional loan (the most common type, not backed by a government agency) usually requires between 3 and 20 percent down, depending on your credit score and debt-to-income ratio. Borrowers with excellent credit and low debt can sometimes go as low as 3 percent; those with average credit may need 10 to 15 percent.

An FHA loan (backed by the Federal Housing Administration) allows 3.5 percent down if your credit score is 580 or higher. This is why FHA loans are common for first-time buyers with limited savings. The trade-off is that you pay mortgage insurance for the life of the loan, which adds roughly $100 to $300 per month depending on the loan size.

A VA loan (for veterans, active-duty service members, and some surviving spouses) often requires zero down. A USDA loan (for rural properties and borrowers meeting income limits) also often requires zero down. Both of these programs have their own insurance costs built into the monthly payment, but you do not need to save a down payment first.

Your lender will tell you which programs you may be may be able to access for based on your credit, income, and the property location. Ask them to show you the minimum down payment for each option so you can compare.

Closing Costs Are Separate From Your Down Payment

Do not confuse your down payment with closing costs. Your down payment goes toward the purchase price. Closing costs are fees paid to the lender, title company, appraiser, inspector, and others—they typically run 2 to 5 percent of the purchase price.

On a $300,000 house, closing costs might be $6,000 to $15,000. If you are putting down 20 percent ($60,000), you need $60,000 plus $6,000 to $15,000 in closing costs, for a total of $66,000 to $75,000 in cash at closing. Many buyers forget this and run short.

Some lenders allow you to roll closing costs into the loan (meaning you finance them instead of paying them upfront), but this increases your loan amount and your monthly payment. Ask your lender whether this is an option for you.

What Happens When You Put Down Less Than 20 Percent

If your down payment is below 20 percent on a conventional loan, you will pay private mortgage insurance (PMI). This is an insurance policy that protects the lender if you default. It costs roughly 0.5 to 1.5 percent of your loan amount per year, added to your monthly payment.

On a $250,000 loan with 10 percent down ($25,000), PMI might add $100 to $150 per month. You can stop paying PMI once you have paid down the loan to 80 percent of the home's original purchase price, which usually takes 8 to 15 years depending on your payment schedule and whether home values rise.

FHA loans require mortgage insurance (called MIP) regardless of your down payment percentage. VA and USDA loans do not require PMI, but they have their own funding fees or insurance costs built into the loan.

Keeping Cash in Reserve After You Buy

Putting every dollar you have into your down payment is a mistake. Homes need repairs. Furnaces fail. Roofs leak. Most financial advisors recommend keeping 3 to 6 months of mortgage payments, property taxes, insurance, and utilities in a savings account after you close.

If your monthly housing costs are $2,000, that means $6,000 to $12,000 in reserve. If you have saved $50,000 total and your down payment is $45,000, you have only $5,000 left—not enough. In this case, you might choose a lower purchase price, a lower down payment percentage (and accept PMI), or delay buying until you have saved more.

This is a personal decision, but it is worth making consciously rather than by accident.

How to Know What You Can Actually Afford

Your lender will run a debt-to-income calculation to see how large a loan they will give you. This is based on your income, existing debts (car loans, credit cards, student loans), and the down payment you bring. A larger down payment means a smaller loan, which is easier to get approved for.

Before you start house hunting, get a pre-qualification letter from a lender. This tells you the maximum loan amount you can borrow and the down payment range they will accept. It is not a may provide of a loan, but it shows you what is realistic.

Use this number to work backward. If a lender will give you a $240,000 loan and you want to put down 10 percent, the maximum purchase price is roughly $267,000 (because $240,000 is 90 percent of that). If you want to put down 20 percent, the maximum price drops to $300,000 (because $240,000 is 80 percent of that). The down payment percentage you choose directly limits the price range you can shop in.

Frequently Asked Questions

Can I borrow my down payment from family or friends?

Most lenders allow down payment gifts from family members, but they require a signed letter stating it is a gift, not a loan you have to repay. Some lenders have rules about how much can be gifted (often 10 to 20 percent of the down payment must come from your own savings). Borrowing from friends or non-family sources is usually not allowed. Ask your lender about their gift policy before you accept money.

What if I can only afford a 3 percent down payment?

A 3 percent down payment is possible on conventional loans and FHA loans, but you will pay PMI or MIP on top of your regular mortgage payment. This increases your monthly cost by $100 to $300 or more. Run the numbers with your lender to see whether a lower down payment with insurance costs less per month than waiting to save more and putting down 10 or 20 percent.

Does the seller ever pay part of my down payment?

No, the seller does not pay your down payment. However, the seller can pay some of your closing costs as part of the purchase agreement. This is negotiated between you and the seller (through your real estate agent) and is separate from your down payment. Seller concessions typically cover 2 to 6 percent of the purchase price.

What if home prices drop after I buy?

If the home value falls below what you owe on the mortgage, you are underwater. A larger down payment protects you against this because you own more of the home from day one. With a 20 percent down payment, the home would need to drop 20 percent in value before you are underwater. With 3 percent down, you are underwater if the value drops just 3 percent. This is one reason larger down payments are considered safer.

Can I increase my down payment after I make an offer?

Yes. If you decide to put down more than you originally planned, you can ask your lender to adjust the loan amount downward before closing. This lowers your monthly payment and may eliminate PMI if you cross the 20 percent threshold. There is no penalty for doing this, but you need to notify your lender in writing and allow time for them to process the change.