Down payment percentages depend on the loan type and your financial situation

The percentage of your purchase price that you put down ranges from 3% to 20%, depending on which loan program you use and what lenders will accept. A conventional loan typically requires 5% to 20% down. An FHA loan allows 3.5% down. A VA loan (if you may have access to) requires 0% down. A USDA loan (for rural properties) also requires 0% down. The percentage you choose affects your monthly payment, how much you borrow, and whether you pay mortgage insurance.

The relationship is straightforward: a larger down payment means you borrow less money, which lowers your monthly payment and often removes the requirement to pay mortgage insurance. A smaller down payment means you borrow more, your monthly payment is higher, and you almost certainly pay mortgage insurance on top of it. The trade-off is between cash you have now and cash you pay monthly.

Key Takeaways

  • Conventional loans typically require 5% to 20% down, while FHA loans allow 3.5% down and VA or USDA loans allow 0% down.
  • Putting down less than 20% on a conventional loan triggers mortgage insurance, which adds to your monthly payment until you reach 20% equity.
  • A 20% down payment eliminates mortgage insurance but requires more cash upfront; a 3% to 5% down payment preserves cash but costs more monthly.
  • Your down payment percentage is calculated on the home's purchase price, not on your total savings or income.

How down payment percentages work with different loan types

Conventional loans are mortgages not backed by a government agency. Most lenders require 5% down as a minimum, though some accept 3% if you have good credit and income. You can put down 10%, 15%, 20%, or more. The higher your percentage, the lower your interest rate tends to be, because the lender's risk decreases.

FHA loans are backed by the Federal Housing Administration. They allow 3.5% down, which is the lowest percentage among government-backed options. You pay mortgage insurance for the life of the loan, regardless of how much equity you build. This makes the monthly cost higher than a conventional loan at the same interest rate.

VA loans are for military members, veterans, and surviving spouses. They require 0% down. You do not pay mortgage insurance. This is the only major loan type where zero down is standard.

USDA loans are for rural properties and borrowers with moderate income. They also require 0% down and do not charge mortgage insurance, though they do charge a may provide fee.

What happens when you put down less than 20%

When your down payment is below 20% on a conventional loan, your lender requires you to pay private mortgage insurance (PMI). This is an insurance policy that protects the lender if you stop paying. It does not protect you. The cost is typically 0.5% to 1.5% of your loan amount per year, divided into your monthly payment.

Example: You buy a $300,000 house and put down $15,000 (5%). You borrow $285,000. If PMI costs 1% annually, you pay $2,850 per year, or about $238 per month, on top of your principal, interest, and property taxes. You pay this until you reach 20% equity in the home—either through payments or through the home's value increasing.

PMI is not permanent, but it is not automatic either. You must request removal once you reach 20% equity. Some lenders will remove it automatically at 22% equity, but you should not count on that. Track your equity and ask your lender when you can stop paying.

The math behind down payment percentages

Down payment percentage is calculated this way: (down payment amount ÷ purchase price) × 100 = percentage. If you buy a $250,000 house and put down $50,000, that is ($50,000 ÷ $250,000) × 100 = 20%.

The purchase price is what you negotiate with the seller, not the appraised value or the list price. If you offer $240,000 on a house listed at $250,000, your down payment percentage is based on $240,000. This matters because it determines whether you hit the 20% threshold for PMI removal.

Your down payment comes from your own savings. It does not include the loan amount, closing costs, or money borrowed from family. Some lenders allow a gift from a family member to count toward your down payment, but the gift must be documented and you cannot repay it.

Why 20% is the standard benchmark

Twenty percent is the threshold where mortgage insurance disappears on a conventional loan. It is not a requirement—you can put down 5%, 10%, or 15%—but it is the point where the math changes. Below 20%, you pay PMI. At 20% and above, you do not.

Lenders also offer better interest rates at 20% down because their risk is lower. The difference is usually 0.25% to 0.5% in interest rate, which compounds over 30 years. On a $300,000 loan, that can mean tens of thousands of dollars in total interest paid.

However, 20% down is not always the right choice. If you have $60,000 saved and the house costs $300,000, putting down 20% ($60,000) leaves you with no emergency fund and no money for repairs or closing costs. Putting down 10% ($30,000) and keeping $30,000 in savings may be the safer choice, even though you pay PMI.

Down payment percentages and closing costs

Your down payment and closing costs are separate expenses. Closing costs typically run 2% to 5% of the purchase price and cover appraisal, title search, inspection, attorney fees, and lender fees. They are not included in your down payment percentage.

If you buy a $300,000 house with 5% down, you put down $15,000. Closing costs might be $9,000. Your total cash needed is $24,000, not $15,000. Some lenders allow you to roll closing costs into the loan, but this increases your monthly payment and the total interest you pay.

Frequently Asked Questions

Can I put down less than 3%?

Conventional loans rarely go below 3%, and most require 5% minimum. Some lenders offer 3% down programs, but they typically require excellent credit and income. FHA at 3.5% is usually the lowest-down option available to most borrowers.

Does a larger down payment always mean a lower interest rate?

Usually, yes. A 20% down payment typically gets a lower rate than 5% down on the same loan type. The difference is often 0.25% to 0.5%. However, your credit score and income matter more than down payment percentage, so a strong credit profile with 5% down may get a better rate than a weak one with 20% down.

What if I can only afford 3% down?

You can use an FHA loan, which allows 3.5% down, or a conventional loan with a 3% down program if your credit is good. You will pay mortgage insurance either way. Calculate the total monthly cost including insurance before you commit, so you know what you are paying.

Does my down payment percentage affect my credit score?

Not directly. Your credit score is based on payment history, credit utilization, and account age. However, a larger down payment means a smaller loan, which may lower your debt-to-income ratio and help you may have access to for better rates or larger loans in the future.

Can I use a gift for my entire down payment?

Yes, if the lender allows it and the gift is documented. Most lenders require a gift letter from the family member stating the money is a gift, not a loan. Some programs require you to put down a minimum percentage of your own money, typically 3% to 5%, so check with your lender first.