The most common down payment is 20 percent of the home's price, but many buyers put down less
A down payment is the money you give to the seller at closing — the day you officially become the owner. If a house costs $300,000 and you put down 20 percent, that's $60,000 out of your pocket. The rest ($240,000) you borrow from a bank as a mortgage.
Twenty percent is the number you hear most often because it's the threshold where lenders stop requiring you to buy mortgage insurance — an extra monthly fee that protects the bank if you stop paying. Below 20 percent, you pay that fee until you've paid down enough of the loan. Above 20 percent, you don't.
But 20 percent is not a requirement. Many first-time buyers put down 3 to 10 percent instead. The tradeoff is straightforward: a smaller down payment means you keep more cash in your pocket today, but you pay more in total interest and insurance over the life of the loan.
Key Takeaways
- Twenty percent down is common because it avoids mortgage insurance, but it is not required — many loans accept 3 to 10 percent.
- The lower your down payment, the higher your monthly payment and the more you pay in interest and insurance over time.
- Some loan types (FHA, VA, USDA) have their own insurance rules and may require as little as 3 percent down.
- Your down payment affects your interest rate — larger down payments often may have access to for better rates from the lender.
Why 20 percent became the standard
Lenders created mortgage insurance to protect themselves when a buyer puts down less than 20 percent. If you stop paying and the house sells at a loss, the insurance covers the gap. This lets banks offer loans to people who haven't saved a large down payment.
The 20 percent threshold exists because historical data showed that borrowers who had that much skin in the game were less likely to walk away. It became the cultural benchmark — the number people aimed for — even though it was never a legal requirement.
Today, lenders routinely offer mortgages with 10 percent, 5 percent, or even 3 percent down. You just pay the insurance cost as part of your monthly bill. For some buyers, especially those in expensive housing markets, waiting to save 20 percent means waiting years or decades. A smaller down payment lets them buy sooner.
How down payment size changes your monthly cost
The relationship is direct: a smaller down payment means a larger loan, which means a larger monthly payment. On a $300,000 house, the difference between 20 percent down and 5 percent down is a $45,000 difference in what you borrow.
That $45,000 difference translates to roughly $250 to $300 more per month in principal and interest alone, depending on your interest rate and loan length. Add mortgage insurance (typically 0.5 to 1.5 percent of the loan amount per year), and the gap widens further.
Over a 30-year loan, that extra $250 to $300 per month compounds into tens of thousands of dollars in additional cost. But that calculation only matters if you have the $45,000 sitting in savings. If you don't, the choice is not between a small down payment and a large one — it's between buying now with a small down payment and not buying at all.
Down payment requirements by loan type
Different loan programs have different minimums. A conventional loan — the most common type, sold to investors after closing — typically accepts 3 to 20 percent down. An FHA loan, backed by the Federal Housing Administration, often accepts as little as 3.5 percent. A VA loan, for military members and veterans, frequently requires zero down. A USDA loan, for rural properties, also often requires zero down.
Each program has its own insurance rules. FHA loans require mortgage insurance no matter what down payment you make — even at 20 percent. VA and USDA loans have a funding fee instead, which can be rolled into the loan amount. Conventional loans drop the insurance requirement at 20 percent.
The loan type you can use depends on your situation: your military status, your income, the property location, and the property type. A mortgage lender can tell you which programs you might be able to use.
What happens if you don't have 20 percent saved
You have three realistic paths. First, you can put down less and pay mortgage insurance until you reach 20 percent equity (the point where you've paid down the loan enough that you own 20 percent of the home's value). This is the fastest route to homeownership if you have steady income and can afford the higher monthly payment.
Second, you can wait and save more. This delays buying but reduces your long-term costs. The math depends on your local housing market — if prices are rising faster than you can save, waiting costs you money. If prices are flat or falling, waiting saves you money.
Third, you can explore down payment help programs. Some states, cities, and nonprofits offer grants or forgivable loans to first-time buyers. These vary widely by location and income level. A mortgage lender or local housing authority can point you toward programs in your area.
How your down payment affects your interest rate
Lenders offer better interest rates to borrowers who put down more money. The difference is usually small — perhaps 0.25 to 0.5 percent — but it compounds over 30 years. On a $240,000 loan, a 0.5 percent rate difference means roughly $100 more or less per month.
The reason is risk: a borrower with 20 percent down has more to lose if the house loses value, so they're statistically less likely to default. A borrower with 3 percent down has less cushion, so the lender charges more to offset that risk.
When you're shopping for a mortgage, always ask for rate quotes at different down payment levels. The difference in monthly payment — including insurance — is what actually matters to your budget.
Down payment gifts and borrowed money
Many first-time buyers use a gift from family to boost their down payment. Lenders allow this, but they require documentation: a letter from the gift-giver stating that the money is a gift, not a loan, and that they expect no repayment. Without this letter, the lender counts the gift as debt you owe, which can disqualify you.
Borrowing the down payment from someone else — even family — is much harder. Most lenders will not allow it because it increases your debt-to-income ratio, the measure they use to decide how much you can borrow. If you're considering a loan from family, talk to a lender first about whether it's allowed and how it affects your borrowing power.
Frequently Asked Questions
Can I put down less than 3 percent?
Conventional loans typically don't go below 3 percent. Some FHA and state programs go lower, but they're rare and usually require specific circumstances like first-time buyer status or low income. A mortgage lender can tell you what's available in your situation.
What if I put down more than 20 percent?
You avoid mortgage insurance and usually get a better interest rate. The tradeoff is that you have less cash left for emergencies, home repairs, or other needs. Some financial advisors suggest keeping 6 to 12 months of expenses in savings before putting extra money toward a down payment.
Does my down payment affect how much I can borrow?
Yes. Lenders calculate how much you can borrow based on your income and debts, not your down payment. But a larger down payment means you need to borrow less to reach the same purchase price. If you can afford a $300,000 house with 10 percent down, you can also afford it with 20 percent down — you just keep more cash.
Can I use retirement savings for a down payment?
Some retirement accounts allow withdrawals for first-time home purchases, but the rules vary by account type and there may be tax consequences. Talk to a tax professional or financial advisor before withdrawing, because the penalties can be steep.
What if housing prices are rising fast in my area?
Waiting to save a larger down payment might cost you more if prices are climbing faster than you can save. In that case, buying sooner with a smaller down payment and paying mortgage insurance may be cheaper overall than waiting. A mortgage lender can help you run the numbers for your specific situation.