How much down payment for a house do I need?

Couple On Sofa Taking A Break From Unpacking On Moving Day. They already figured out how big their down payment had to be.Image: Couple On Sofa Taking A Break From Unpacking On Moving Day. They already figured out how big their down payment had to be.

In a Nutshell

From 0% to 3% or 20%, how much should your down payment be on a house? Some mortgage options tout low down payments, which may help you get into a home quicker — but if you can afford more, a 20% mortgage down payment has advantages, too. It comes down to knowing what works best for you.
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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.

Every mortgage program comes with a down payment requirement. Government-backed loans and some private mortgages require as little as 0% or 3% down for qualified buyers.

A smaller down payment might make buying a home more accessible. But if you can swing it, you may want to consider putting down more than what’s required. A higher down payment shrinks your monthly mortgage payment and may help you avoid private mortgage insurance.

A bigger down payment also gives you a bigger ownership stake in your home from the get-go.

Ultimately, how much you put down is a matter of figuring out what’s best for your situation. Read on for some guidance.

How much is the average down payment on a home?

Across the board, homebuyers are making smaller down payments, according to a report from the National Association of Realtors. The average down payment in 2018–2019 was 12%, while first-time homebuyers put down just 6%. Repeat homebuyers from the survey put down a little more, with an average of 16%.

The main benefit of smaller down payments is they can allow you to buy a home sooner than if you need 20% saved. If you’re looking for mortgages with low down payments and lenient credit requirements, these government-backed loans may fit the bill.

FHA loans

Backed by the Federal Housing Administration, this government-backed loan allows you to put down as little as 3.5% if you have a credit score of at least 580. If your score is between 500 and 579, you’ll need to put down at least 10%.

All loans backed by the FHA come with mortgage insurance, both as an upfront cost and as a monthly payment that’s baked into your mortgage bill.

VA loans

If you’re a military veteran, active-duty service member or an eligible surviving spouse, you may qualify for a loan backed by the U.S. Department of Veterans Affairs. VA loans often don’t require a down payment, as long as the sales price doesn’t exceed the appraised value. They also don’t  come with mandatory mortgage insurance.

But most borrowers do have to pay a funding fee that acts like a down payment. The fee is typically calculated as a percentage of the purchase price, ranging from 1.4% to 3.6%. If you decide to put money down, you’ll pay a lower funding fee.

USDA loans

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. The goal of USDA loans is to give people with lower incomes an opportunity to buy a home in a rural area. Mortgage insurance, often called a loan guarantee fee, is required with USDA loans.

Examples of low down payment conventional loans

Although many mortgage lenders now offer low down payment conventional loans, 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 “Affordable Loan Solution”: Bank of America offers a mortgage with a 3% down payment and no mortgage insurance, though buyers may have to meet income requirements.
  • Wells Fargo: Wells Fargo offers a 3% down conventional mortgage loan geared toward new homebuyers, but it adds that private mortgage insurance is required on its low down payment loan.
  • Cardinal Financial: You can put as little as 3% down on a Cardinal Financial mortgage with loan terms ranging from 10 to 30 years.

Is it worth it to put 20% down on a house?

If you can afford at least a 20% down payment, you may want to go for it. Here’s why.

  • Build equity faster — A higher down payment means you’ll start off with more ownership stake in your home, known as equity. This is beneficial if you want to pay down the mortgage faster or borrow against your equity using a home equity line of credit or loan.
  • No mortgage insurance — If you take out a conventional loan with at least 20% down, then you won’t have to pay for private mortgage insurance.
  • Lower monthly payment — Because you’ll be borrowing less money when you put down at least 20%, it’ll help shrink your monthly payments.

As you’re thinking about whether you can afford at least a 20% down payment, make sure that you consider not just the down payment but also closing costs, moving expenses and savings you’ll want to keep on hand in case of future financial emergencies.

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 and ask yourself a few questions.

  • How’s my credit? Your credit scores can influence whether you qualify for a mortgage and the interest rate you get. Pull your credit reports to look for errors, and check your credit scores to gauge whether there’s room for improvement.
  • What’s my debt-to-income ratio? Lenders also look at your income and debt obligations to see if you can reasonably handle the monthly mortgage payments. Calculate your DTI ratio to see if you need to improve here as well.
  • How much can I afford? Based on your overall financial situation, you can figure out what you can afford and shop for homes within that budget.

By saving up for a down payment and preparing your finances, you’ll set a good foundation for buying a home. Talk with a lender to go over your loan options and ask about getting a loan preapproval. The lender can help you see whether you qualify for a home loan and how much you can borrow.

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma,, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.