In a NutshellHow much should your down payment be on a house? Some mortgage options include low down payments, which may help you get into a home quicker, but if you can afford more, a bigger mortgage down payment has advantages too.
How much down payment to make when you buy a house is a delicate balance of how much cash you can spare — and how low you want your monthly mortgage payments to be.
While shopping around for a home loan, you may notice that putting the customary 20% down isn’t necessary for every mortgage. Qualified buyers may be eligible for a government-backed loan with 0% down or a conventional loan with as little as 1% down.
Low down payment options may look attractive if you don’t have a lot of money stashed away, but saving up for a large payment has its benefits. Making a larger down payment will mean you have a larger ownership stake (or equity) in your home from the start.
Putting down 20% could also help you avoid having to pay private mortgage insurance on a conventional mortgage — and it may help lower your interest rate.
Let’s go over how much homebuyers typically put down and when it may be worthwhile to put down 20%.
- What is a down payment?
- How much is the average down payment on a home?
- Minimum down payment requirements
- Examples of low-down-payment conventional loans
- Do you need to put 20% down?
- Can you buy a house without a down payment?
- Down payment FAQs
What is a down payment?
A down payment is a fraction of your home’s price that you pay upfront.
The down payment plus the amount of your mortgage equals your home’s purchase price. if you make a larger down payment, you don’t have to borrow as much to buy your home. But if you make a smaller down payment, you need a larger home loan to cover the cost.
One reason making a down payment is important is that your home’s value could fall. If you make a small down payment, it’s more likely that a housing market downturn could leave you with a mortgage balance that’s higher than your home’s price — known as an underwater mortgage. And having an underwater mortgage could prevent you from refinancing or selling your home.
Lenders want to avoid underwater mortgages because they increase the chances that the lender will lose money on the loan. Lenders view borrowers who make substantial down payments as better risks, and typically offer lower interest rates to homebuyers who can put down a sizable sum.
How much is the average down payment on a home?
It’s pretty common for both first-time and repeat homebuyers to make down payments of less than 20%, according to a report from the National Association of REALTORS®. In 2022, the down payment for a typical first-time homebuyer was 6%, and repeat buyers typically put down 17%.
At the end of 2022, the median new-home sale price in the U.S. was $471,200, according to data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development. Having 20% (or $94,240) to put down on a home with that price tag could take years of saving. Considering that math, a lower down payment might be the best option for many people.
For people who don’t have a large cash reserve but want to buy a home, low down payment options may open the door to homeownership. If you’re looking for mortgages requiring little money down with lenient credit requirements, government-backed loans may fit the bill.
Minimum down payment requirements
Backed by the Federal Housing Administration, FHA loans offer a minimum down payment of 3.5% on a house if you have credit scores of at least 580. If your scores are between 500 and 579, you’ll need to put down at least 10%. Keep in mind that these are the FHA’s requirements, not your lender’s. Additional lender standards may apply.
Loans backed by the FHA come with mortgage insurance premiums, or MIPs, both as an upfront cost and as a monthly payment that’s baked into your mortgage bill. For FHA loans taken out after 2013 with a down payment of 10% or more, MIPs stick around for 11 years. If your down payment is less than 10%, you’ll have to pay the mortgage insurance for the life of the loan.
If you’re a military veteran, active-duty service member or an eligible surviving spouse, you may qualify for a VA loan backed by the U.S. Department of Veterans Affairs. With a VA loan, you may be eligible to get a mortgage without making a down payment — as long as the sales price doesn’t exceed the appraised value.
VA loans don’t come with mandatory mortgage insurance, but most borrowers have to pay a VA loan funding fee. This fee can be paid upfront at closing or rolled into your loan and paid over time. How much you’ll pay depends on your down payment and how many times you’ve used the VA loan benefit. Generally, the more money you put down, the lower the funding fee.
These zero-down-payment, government-backed loans come in two forms: direct loans offered to homebuyers from the U.S. Department of Agriculture and guaranteed loans offered by private lenders.
USDA loans aim to give people with low and moderate incomes an opportunity to buy a home in a rural area. With a USDA loan, you pay a guarantee fee upfront and annually, which works like mortgage insurance.
Conventional loans are mortgages from private lenders that don’t fit into a particular government program. Some conventional loans have non-standardized requirements that are determined by the lenders and are called non-conforming loans. Others, known as conforming loans, follow requirements from Fannie Mae or Freddie Mac.
Making a 20% down payment on a conventional loan is ideal because you can avoid paying private mortgage insurance, or PMI. Mortgage insurance pays your lender if you don’t make your payments on time, but it’s for the lender’s benefit only. It doesn’t prevent your credit scores from falling or help you avoid foreclosure if you default on your mortgage.
Since mortgage insurance doesn’t protect you and adds to your costs, it’s better not to have to pay it.
But a 20% down payment often isn’t required on a conventional loan. Some lenders may allow down payments as low as 3%.
In particular, certain conforming loans called Conventional 97 loans require minimum 3% down payments and are available to homebuyers who meet eligibility restrictions.
- Fannie Mae HomeReady Loans are available to homebuyers with lower incomes who have a credit score of at least 620 and who complete homebuyer counseling.
- Fannie Mae 97% LTC Standard loans are available to first-time homebuyers with credit scores of 620 or higher.
- Freddie Mac Home Possible Loans are available to homebuyers with credit scores of 660 or higher who live in underserved areas or whose income is below a set limit.
- Freddie Mac Home One loans require homebuyer education for first-time homebuyers and are available for single-unit homes that the homebuyer will live in.
Examples of low-down-payment conventional loans
Many mortgage lenders also offer low down payment conventional loans, which you can consider if you want to put down less than 20%. Here are a few examples of what might be available to you depending on your credit profile and a variety of other factors.
- Bank of America: Bank of America offers the Affordable Loan Solution® mortgage, which is a fixed-rate loan with a down payment as low as 3% — but it requires mortgage insurance. You’ll have to meet income requirements, and you may have to take a homebuyer education class.
- Chase: Chase offers the DreaMaker℠ mortgage that allows as low as 3% down with flexible income and credit requirements.
- HSBC: HSBC offers mortgages where you may be able to put down as little as 3%.
- Wells Fargo: Wells Fargo offers as low as 3% down on conventional mortgages with private mortgage insurance required.
- Cardinal Financial: Cardinal Financial has conventional loans where you may be able to put down as little as 3%.
Do you need to put 20% down?
Whether it makes sense to put down 20% depends on your goals and financial situation. If you can afford at least a 20% down payment, it could be a good idea for the following reasons:
- Build equity faster — A higher down payment means you’ll start off with more home equity. This is beneficial if you want to pay down the mortgage faster or borrow against your equity using a home equity loan or line of credit.
- No mortgage insurance — If you take out a conventional loan with at least 20% down, you typically won’t have to worry about paying private mortgage insurance.
- Lower monthly payment — Putting down more money means you’ll be borrowing less for your home, which can shrink your payment. With that monthly savings, you could put more cash toward other goals like investing, saving for retirement or paying down student debt.
- Long-term savings — A higher down payment could mean you pay less interest over time, which can save you money over the long term.
When calculating how much to put down, keep in mind that the down payment isn’t the only cost of buying a home. You’ll also need to factor in closing costs, taxes, appraisal fees and title fees.
Can you buy a house without a down payment?
You might be able to buy a house without a down payment if you qualify for a mortgage program that doesn’t require money down.
If you’re a qualifying veteran, current member of the military, or surviving spouse, you may be able to get a VA loan without a down payment as long as you aren’t buying a home for more than its appraised value. But you’ll typically owe a VA funding fee, which may be higher if you aren’t making a down payment.
If you have low-to-moderate income and are shopping for a home in a rural area, you might qualify for a USDA loan with no down payment. You’ll be charged a fee at closing, though.
Otherwise, you may want to apply to down payment assistance programs for help lowering your down payment. Depending on the program, you could get money for a down payment through a grant, loan or savings match if you meet specific criteria.
Next steps: Getting your finances ready to buy
If you’re thinking about buying a home, in addition to saving up, you’ll want to start making sure your finances are in shape before you submit your mortgage application. Begin a few months ahead of time by asking yourself these questions.
- What’s my budget? Review your income and expenses each month and think about what mortgage payment you could comfortably afford. Using a home affordability calculator can help you formulate your homebuying budget.
- What’s on my credit report? Lenders check your credit and credit scores to determine if you qualify for a mortgage and at what interest rate. Pull your credit reports to review where you stand and identify errors that could be hurting your scores. Errors should be disputed with each credit bureau reporting the information.
- What can I do to improve my scores? Improving your credit is something you can do yourself for free without the help of a credit-repair agency. Paying down debt to reduce your credit utilization could increase your scores, and making on-time payments could help you establish a positive payment history. If you decide to work with a credit-repair agency, beware of scams — a credit-repair company can’t guarantee to remove report items, and it shouldn’t charge fees upfront before providing the service and showing results.
- What’s my debt-to-income ratio? Along with your credit, lenders look at your income and debt obligations to see if you can reasonably handle the monthly mortgage payments. You can calculate your DTI ratio by adding up your debt payments for the month, dividing that sum by your gross monthly income and multiplying by 100. Requirements for DTI can vary, but generally, lenders look for a DTI of 43% or less. Paying down debt can help improve your DTI.
Saving up as much as you can and preparing your finances can help set a good foundation for buying a home. Talk with a lender to go over your options and consider getting a loan preapproval. The lender can help you explore mortgage programs, and getting preapproved gives you a conditional offer you can use when shopping around to show sellers you’re a serious buyer.
Down payment FAQs
According to a report from the National Association of REALTORS®, a typical first-time homebuyer put down 6% in 2022. A typical repeat homebuyer made a down payment of 17% that year.
You don’t typically have to put 20% down to buy a house, but there are advantages to making a larger down payment. It generally allows you to avoid paying mortgage insurance, and it can save you money on interest.
How much you need to put down depends on the loan you qualify for. If you can get a conventional loan with a 3% down payment, you’ll only need to put down $9,000 on a $300,000 house. But if you want to make a 20% down payment so you don’t owe private mortgage insurance, you’ll need to put down $60,000.
Depending on your credit and the type of mortgage loan you’re applying for, a 5% down payment may be enough. You can get an FHA loan with as little as a 3.5% down payment if your credit score is at least 580. USDA loans and VA loans usually don’t require any down payment. And some lenders offer conventional loans with 5% down payments to borrowers who qualify.
The best down payment for you depends on your circumstances. Choose a down payment that’s achievable and that still leaves you with some cash in case of emergencies.
Your credit scores can affect the terms of loans you’re offered, including the down payment. If your credit scores are low, you may have to put more money down.