The down payment is the cash you hand over at closing, expressed as a percentage of the home's purchase price. The rest comes from a mortgage loan. First-time buyers put down anywhere from 3 percent to 20 percent, depending on the loan program, your savings, and what you can afford to borrow.
A $300,000 home with a 5 percent down payment means you pay $15,000 upfront and borrow $285,000. With 10 percent down, you pay $30,000 and borrow $270,000. The lower your down payment, the larger your monthly mortgage payment and the more interest you pay over the life of the loan. The higher your down payment, the less you borrow—but you need more cash on hand right now.
The down payment is separate from closing costs, which are fees for the appraisal, title search, inspection, and lender services. Closing costs typically run 2 to 5 percent of the purchase price and come due at the same time as the down payment. A first-time buyer needs to save for both.
Key Takeaways
- First-time buyers can put down as little as 3 percent with an FHA loan or a conventional loan backed by a private mortgage insurer.
- Putting down less than 20 percent triggers mortgage insurance, which adds to your monthly payment until you reach 20 percent equity in the home.
- Down payment information programs exist in most states and cities, though they vary widely in what they cover and who can use them.
- Your down payment amount affects your interest rate: lenders charge lower rates to borrowers who put down more cash.
How much you can actually afford to put down
Your down payment is limited by two things: how much you have saved and how much a lender will let you borrow. Most lenders require a minimum down payment of 3 to 5 percent for first-time buyers, though some programs go lower. The FHA loan program, which is run through the Federal Housing Administration, allows down payments as low as 3.5 percent and is designed for first-time buyers with limited savings.
If you have saved $20,000 and are buying a $300,000 home, that is roughly 6.7 percent down. You would need to borrow $280,000. A lender will check your income, debts, and credit score to decide whether you can carry that loan. They typically want your total monthly debt payments—including the new mortgage—to be no more than 43 percent of your gross monthly income. If you earn $5,000 a month before taxes, the lender will allow roughly $2,150 in total debt payments.
The amount you put down also affects the interest rate you receive. A buyer putting down 10 percent typically gets a higher rate than one putting down 20 percent, because the lender takes on more risk when you borrow a larger share of the home's value.
What happens when you put down less than 20 percent
Mortgage insurance is required whenever your down payment is below 20 percent. This insurance protects the lender if you stop paying the mortgage, but you pay the premium. For a conventional loan (the most common type for first-time buyers), the insurance is called PMI, or private mortgage insurance. For an FHA loan, it is called MIP, or mortgage insurance premium.
PMI typically costs 0.5 to 1.5 percent of the loan amount per year, divided into monthly payments. On a $285,000 loan, that could be $120 to $360 per month. The exact rate depends on your credit score, the size of your down payment, and the lender. PMI stays on your loan until you reach 20 percent equity—meaning you have paid down the loan or the home has increased in value enough that you own 20 percent of it outright. This usually takes 5 to 10 years.
FHA loans charge mortgage insurance upfront (a one-time fee added to your loan) and then an annual premium on top of your monthly payment. The upfront fee is typically 1.75 percent of the loan amount. The annual premium varies but is usually 0.5 to 0.8 percent of the loan per year. Unlike PMI, FHA mortgage insurance does not automatically drop off when you reach 20 percent equity; it stays for the life of the loan if you put down less than 10 percent.
Down payment information programs for first-time buyers
Many states, cities, and nonprofits offer down payment help. These programs vary widely: some give grants (money you do not repay), some offer low-interest loans, and some do both. The amount ranges from a few thousand dollars to 15 or 20 percent of the purchase price, depending on the program and your income.
State housing finance agencies run programs in every state. You can find yours by searching "[your state] housing finance agency" or visiting the National Council of State Housing Agencies website. Local programs are often run by your city or county housing authority. Nonprofits like NeighborWorks and local community development organizations also administer down payment help.
Most programs have income limits—you must earn below a certain amount to be may be able to access. Many also require that you complete a homebuyer education course, which teaches you how mortgages work, what to expect at closing, and how to maintain a home. Some programs are tied to specific neighborhoods or property types. A few require you to work with a particular lender or real estate agent. Before you start saving, contact your local housing authority or a HUD-approved housing counselor to learn what is available where you live.
The difference between down payment and closing costs
Your down payment and closing costs are two separate amounts due at closing. The down payment is your equity stake in the home. Closing costs are fees paid to third parties—the appraiser, title company, inspector, lender, and others involved in the transaction.
| Item | What it covers | Typical range |
|---|---|---|
| Down payment | Your cash contribution toward the purchase price | 3–20% of purchase price |
| Closing costs | Appraisal, title search, inspection, lender fees, attorney fees, taxes, insurance | 2–5% of purchase price |
On a $300,000 home, a 5 percent down payment is $15,000. Closing costs might be $6,000 to $15,000. You need both amounts in cash at closing. Some sellers will pay part of the buyer's closing costs as part of the negotiation, which reduces what you need to bring. Some lenders allow closing costs to be rolled into the loan, though this increases your monthly payment and the total interest you pay.
How to save for a down payment
Saving for a down payment takes time for most first-time buyers. The median down payment for first-time buyers varies by region and year, but many put down between 5 and 10 percent. If you are buying a $300,000 home and want to put down 10 percent, you need $30,000 plus another $6,000 to $15,000 for closing costs—roughly $36,000 to $45,000 total.
Start by opening a separate savings account and setting up automatic transfers from each paycheck. Even $200 or $300 per month adds up. Track your progress and set a target date. If you need the money in three years, you know how much to save each month. Look into whether your employer offers a down payment information benefit—some do as part of their benefits package.
Consider whether a down payment information program makes sense for you. If you can put down 5 percent and a local program covers another 5 percent, you reach 10 percent without depleting your savings. This leaves you with a cash cushion for repairs and emergencies after you buy, which is important because homeownership always brings unexpected costs.
Down payment requirements by loan type
Different loan programs have different minimum down payments. The program you choose affects not only how much you need upfront but also your interest rate, monthly payment, and how long you carry mortgage insurance.
| Loan type | Minimum down payment | Mortgage insurance | Best for |
|---|---|---|---|
| FHA loan | 3.5% | Required; stays for life of loan if down payment under 10% | Buyers with lower credit scores or limited savings |
| Conventional loan with PMI | 3–5% | Required until 20% equity; drops automatically | Buyers with decent credit and some savings |
| VA loan (military) | 0% | Not required | Active duty, veterans, and may be able to access spouses |
| USDA loan (rural) | 0% | Required but built into loan | Buyers in may be able to access rural areas |
An FHA loan is the most common choice for first-time buyers because the 3.5 percent minimum is lower than conventional loans and the credit score requirements are more flexible. A conventional loan with PMI is a good option if you have a credit score above 620 and can save 5 to 10 percent. If you are military or buying in a rural area, VA and USDA loans offer zero down payment options.
Frequently Asked Questions
Can I borrow money from family for my down payment?
Yes, but the lender needs to know about it. Most lenders require a letter from the family member stating that the money is a gift, not a loan you have to repay. If it is a loan, you have to count the monthly payment as debt when the lender calculates how much you can borrow. Some programs have rules about how much of your down payment can come from gifts.
What if I do not have enough saved for a down payment?
Look into down payment information programs in your area first—many cover 5 to 10 percent of the purchase price. If programs are not available or you do not meet the income limits, consider an FHA loan, which requires only 3.5 percent down. You could also delay buying for a year or two while you save, or look for a less expensive home that fits your current savings.
Does a larger down payment always mean a better deal?
Not necessarily. A larger down payment lowers your monthly payment and eliminates mortgage insurance, but it ties up cash you might need for emergencies or home repairs. Many first-time buyers are better off putting down 5 to 10 percent and keeping the rest in savings. Run the numbers with a lender to see what makes sense for your situation.
Can I use my retirement account for a down payment?
Some retirement accounts allow withdrawals for a first-time home purchase. A traditional or Roth IRA lets you withdraw up to $10,000 lifetime for a first-time home purchase without the usual early withdrawal penalty. A 401(k) may allow a loan against your balance. Talk to your plan administrator and a tax professional before withdrawing, because there may be tax consequences.
What if the home appraises for less than the purchase price?
If the appraisal comes in low, the lender will only lend based on the lower value. If you agreed to pay $300,000 but it appraises at $280,000, the lender might only lend 80 percent of $280,000. You would need to cover the difference with your down payment or renegotiate the price with the seller. This is why having extra savings beyond your down payment matters.