A down payment is the money you put toward a house at closing, expressed as a percentage of the purchase price

If you buy a house for $300,000 and put down $60,000, your down payment is 20 percent. The lender finances the remaining $240,000 through your mortgage. The down payment comes from your own savings — not borrowed money — and it reduces the amount you need to borrow and the interest you'll pay over the life of the loan.

Down payments range from 3 percent to 20 percent or more, depending on the loan type and your financial situation. A smaller down payment means a larger monthly mortgage payment and more interest paid overall. A larger down payment means lower monthly payments and less total interest, but it also ties up more of your cash upfront.

Key Takeaways

  • Your down payment is the cash you contribute at closing; the lender finances the rest through your mortgage.
  • Down payments typically range from 3 to 20 percent of the purchase price, depending on loan type and your circumstances.
  • A smaller down payment lowers your upfront cost but increases your monthly payment and total interest paid.
  • Putting down less than 20 percent usually requires you to pay private mortgage insurance, which adds to your monthly cost.
  • The down payment amount affects your interest rate, monthly payment, and how much house you can afford.

How down payment size affects your monthly payment and total cost

The larger your down payment, the smaller your loan amount, and the lower your monthly mortgage payment. On a $300,000 house at a 7 percent interest rate over 30 years, a 10 percent down payment ($30,000) results in a monthly payment around $1,980 before taxes and insurance. A 20 percent down payment ($60,000) brings that payment down to around $1,680 — a difference of $300 per month.

Over 30 years, that $300 monthly difference adds up to $108,000. The larger down payment also means you pay less total interest to the lender. However, the trade-off is that you need more cash on hand at closing. For many first-time buyers, a smaller down payment makes homeownership possible sooner, even if it costs more in the long run.

Down payment requirements by loan type

Conventional loans typically require a down payment of at least 3 to 5 percent, though 20 percent is common among borrowers with strong credit. FHA loans (Federal Housing Administration) allow down payments as low as 3.5 percent and are designed for first-time buyers or those with lower credit scores. VA loans (for military members and veterans) often require zero down payment. USDA loans (for rural properties) also typically require zero down.

Each loan type has different rules about credit score, debt-to-income ratio, and property location. The loan type you may have access to for depends on your financial profile, military status, and where you're buying. Your lender can tell you which programs you may be able to use and what down payment each one requires.

Private mortgage insurance and down payments under 20 percent

Private mortgage insurance (PMI) is a monthly fee added to your payment when you put down less than 20 percent. PMI protects the lender if you stop paying; it does not protect you. On a $300,000 loan with 10 percent down, PMI might add $150 to $300 per month, depending on your credit score and the loan amount.

PMI is not permanent. Once you've paid your loan down to 80 percent of the original purchase price — through regular payments or a combination of payments and home appreciation — you can request that PMI be removed. Some loans allow automatic removal once you reach that threshold. Knowing when and how to remove PMI can save you thousands over the life of your loan.

Where down payment money comes from

Down payment funds must come from your own savings, gifts from family members, or proceeds from selling another property. Lenders verify the source of your down payment and require documentation — bank statements, gift letters, or sale paperwork — to confirm the money is not borrowed. Borrowing against a credit card, taking a personal loan, or using a home equity line of credit to fund your down payment will disqualify you from most mortgage programs.

Some programs allow a portion of your down payment to come from a gift, but you typically must contribute at least 3 to 5 percent from your own funds. If you receive a gift, the lender requires a signed letter from the gift-giver stating that the money is a gift, not a loan, and that they expect no repayment.

Down payment assistance programs

Some state and local governments, nonprofits, and employers offer down payment assistance to help buyers afford a home. These programs may provide grants (money you don't repay), forgivable loans (loans that disappear if you stay in the home for a set period), or matching funds that supplement your savings. Assistance amounts vary widely — from a few thousand dollars to 10 or 15 percent of the purchase price.

may be able to access depends on income, credit score, first-time buyer status, and the location of the property. Your lender or a local housing counselor can point you toward programs in your area. These programs exist but are not available everywhere, and funding can run out, so it's worth asking about early in your home-buying process.

Saving for a down payment: realistic timelines

How long it takes to save a down payment depends on your income, expenses, and the size of the down payment you're targeting. Saving $30,000 for a 10 percent down payment on a $300,000 home takes different amounts of time depending on how much you can set aside each month. If you can save $500 per month, it takes five years. If you can save $1,000 per month, it takes 2.5 years.

Many buyers start by saving for a smaller down payment — 3 to 5 percent — to get into a home sooner, then refinance later if rates drop or their financial situation improves. Others prioritize saving a larger down payment to avoid PMI and lower their monthly payment from day one. Both approaches are valid; the right choice depends on your timeline, income stability, and how much monthly payment you can afford.

Frequently Asked Questions

Can I use a 401(k) or retirement account for my down payment?

Some retirement plans allow you to borrow against your balance or withdraw funds for a first-time home purchase, but this has tax consequences and reduces your retirement savings. A 401(k) loan must be repaid, and if you leave your job, repayment is often accelerated. An IRA withdrawal for a first-time home purchase may avoid the early withdrawal penalty but is still taxable income. Consult a tax professional before using retirement funds.

What happens if I don't have 20 percent saved?

You can buy with 3 to 5 percent down on most conventional loans, or 3.5 percent on an FHA loan. You'll pay PMI if you put down less than 20 percent, which increases your monthly payment. PMI can be removed once your loan balance reaches 80 percent of the home's original purchase price, so it's not a permanent cost.

Does a larger down payment improve my chances of loan approval?

Yes. A larger down payment lowers your risk to the lender and can improve your approval odds if your credit score or income is borderline. It may also help you secure a lower interest rate. However, lenders approve loans with smaller down payments regularly; the down payment is one factor among several, including credit score, debt-to-income ratio, and employment history.

Can I put down more than 20 percent?

Yes. Putting down 25, 30, or even 50 percent is allowed and reduces your loan amount, monthly payment, and total interest. The trade-off is that you have less cash available for closing costs, home repairs, and emergencies. Many financial advisors suggest keeping some cash in reserve rather than putting every dollar into the down payment.