Key Takeaways
- Down payment minimums range from 3 percent for FHA loans to 5 percent for conventional loans, though some lenders require more depending on your credit and income.
- Putting down less than 20 percent on a conventional loan means you will pay private mortgage insurance (PMI) each month until you reach 20 percent equity.
- A larger down payment lowers your monthly payment, reduces the total interest you pay, and may may have access to you for a better interest rate.
- Down payment assistance programs exist in most states and counties, though they have income limits and may require you to take a homebuyer course.
- Your down payment comes from your own savings — lenders verify the source and require proof the money has been in your account for at least two months.
Down Payment Requirements by Loan Type
FHA loans (backed by the Federal Housing Administration) allow down payments as low as 3.5 percent. You need a credit score of at least 580 to may have access to for this minimum. If your score is between 500 and 579, some lenders will work with you but may require 10 percent down. FHA loans are common for first-time buyers with limited savings or lower credit scores.
Conventional loans (not backed by the government) typically require a minimum of 5 percent down, though some lenders ask for 10 or 15 percent depending on your credit score and debt-to-income ratio. If you put down less than 20 percent, you will pay mortgage insurance. The better your credit and income, the more likely a lender will accept 5 percent.
VA loans (for military members, veterans, and surviving spouses) often require zero down payment if you have a full Certificate of may be able to access. USDA loans (for rural properties) also allow zero down for borrowers who meet income limits. Both of these programs have their own credit and income requirements.
What Happens When You Put Down Less Than 20 Percent
If you borrow more than 80 percent of the home's value, lenders require you to carry private mortgage insurance (PMI). This is a monthly fee added to your mortgage payment — typically between 0.5 and 1.5 percent of the loan amount per year, depending on your down payment size and credit score. A $300,000 loan with PMI might cost $125 to $375 extra each month.
PMI protects the lender, not you. It goes away once you reach 20 percent equity in the home. On a conventional loan, you can request removal once you hit that mark (usually after 5 to 7 years of payments). On an FHA loan, PMI stays for the life of the loan if you put down less than 10 percent; if you put down 10 percent or more, it drops after 11 years.
The math matters: putting down 10 percent instead of 5 percent costs more upfront but saves you money on PMI over time. A mortgage calculator can show you the trade-off for your specific situation.
How Down Payment Size Affects Your Monthly Payment and Interest
A larger down payment directly lowers your monthly mortgage payment because you are borrowing less. On a $400,000 home at 7 percent interest over 30 years, the difference between 5 percent and 20 percent down is roughly $240 per month — before PMI is added to the smaller down payment.
A larger down payment also means you pay less total interest over the life of the loan. With a smaller down payment, more of each early payment goes toward interest rather than principal. Over 30 years, this compounds. You also may may have access to for a lower interest rate if you put down more, because lenders see less risk.
The trade-off is liquidity: money in a down payment is not available for emergencies, home repairs, or other needs. Many financial advisors suggest keeping 3 to 6 months of living expenses in savings before committing everything to a down payment.
Down Payment Assistance Programs
Most states and many counties offer down payment assistance to first-time buyers or buyers with moderate incomes. These programs may cover part or all of your down payment and closing costs. Common sources include state housing finance agencies, nonprofit organizations, and employer-sponsored programs.
Assistance comes in three main forms: grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set period), and second mortgages (loans you repay separately). Income limits vary widely — some programs serve households up to 80 percent of area median income, others up to 120 percent.
To find programs in your area, start with your state's housing finance agency website or contact your local housing authority. Many programs require you to complete a homebuyer education course (often free or low-cost) before you can use the funds. Application timelines vary; some take 2 to 4 weeks, others longer.
Where Down Payment Money Comes From
Lenders require proof that your down payment comes from your own savings or a legitimate source. They will ask for bank statements covering the past two months and may ask where large deposits came from. If someone gives you money as a gift, most lenders allow it — but the gift-giver must sign a letter stating it is a gift, not a loan you have to repay.
Borrowing money for a down payment is generally not allowed on conventional loans. Some FHA lenders permit a co-signer to gift funds, but the rules are strict. Retirement accounts (401k, IRA) can sometimes be tapped for a first-time home purchase, though this has tax consequences and withdrawal limits — consult a tax professional before doing this.
Lenders verify the source because they want to know your true debt load. If you borrowed the down payment, your actual debt is higher than it appears, and your ability to repay the mortgage is weaker.
Timing: When to Save Versus When to Buy
The decision to buy with a smaller down payment now or wait to save more depends on your local market, interest rates, and personal situation. If home prices are rising faster than you can save, buying sooner with 5 percent down and PMI may cost less overall than waiting two years to save 20 percent. If prices are stable or falling, waiting may make sense.
Interest rates also matter. A 0.5 percent difference in your rate costs tens of thousands over 30 years. A larger down payment sometimes qualifies you for a better rate, which can offset the cost of PMI on a smaller down payment. Use a mortgage calculator to compare scenarios specific to your area and credit profile.
Talk to a mortgage lender before deciding. They can show you real numbers for your situation — what rate you may have access to for, what PMI costs, and how long it takes to break even on a larger down payment.
Frequently Asked Questions
Can I use a credit card or personal loan for my down payment?
No. Lenders see new debt as a red flag because it increases your monthly obligations and reduces your ability to pay the mortgage. If you open a credit card or take out a personal loan right before applying, your credit score may drop and your debt-to-income ratio will worsen. Wait until after closing to take on new debt.
What if I do not have enough saved for the minimum down payment?
Look into down payment assistance programs in your state or county — many cover part or all of the down payment for first-time buyers or moderate-income households. You can also explore FHA loans, which allow 3.5 percent down, or ask family members about gifting funds (with proper documentation). Some employers and nonprofits also offer down payment help.
Is it better to put down 5 percent or 10 percent?
It depends on your situation. Ten percent down means lower PMI costs and faster equity buildup, but requires more upfront cash. Five percent down preserves your savings for emergencies and repairs. Run the numbers with a mortgage calculator to see the monthly payment difference, then decide based on your comfort level with debt and available reserves.
Can I remove PMI early if I pay extra toward principal?
On a conventional loan, yes — once you reach 20 percent equity through a combination of down payment and principal payments, you can request PMI removal. On an FHA loan, PMI removal depends on your down payment size and loan age; if you put down less than 10 percent, PMI is permanent. Check your loan documents or ask your lender about the exact rules for your loan.
Does a larger down payment hurt my credit score?
Saving and depositing money does not hurt your credit. However, taking out loans or opening credit cards to fund a down payment will lower your score. The act of applying for a mortgage also causes a small temporary dip, but this recovers within a few months if you make payments on time.