How much down payment do I need for a house?

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

How 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.
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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.

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%.

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 2021, the down payment for a typical first-time buyer was 7%, and repeat buyers typically put down 17%.

At the end of 2021, the median home sale price in the U.S. was $408,100, according to data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development. Having 20% (or $81,620) to put down on a home with that price tag could take several years or more of savings. 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, these government-backed loans may fit the bill.

FHA loans

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.

VA loans

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.

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.

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.

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%.

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

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.

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.

About the author: Taylor Medine is a freelance writer who’s covered all things personal finance for the past seven years. She enjoys writing financial product reviews and guides on budgeting, saving, repaying debt and building credit. … Read more.