Down payments usually range from 3% to 20% of the home's purchase price, depending on the loan type and your financial situation

A down payment is the money you pay upfront when you buy a house. The rest of the purchase price is borrowed through a mortgage. On a $300,000 house, a 10% down payment would be $30,000; a 20% down payment would be $60,000. The percentage you pay affects your monthly mortgage payment, the interest rate you receive, and whether you'll pay mortgage insurance.

The minimum down payment depends on which loan program you use. Conventional loans typically require 3% to 5% down. Federal Housing Administration (FHA) loans allow 3.5% down. U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans may allow 0% down if you meet their requirements. Some lenders offer 3% conventional loans; others require 5% or more.

Putting down less money means a smaller upfront cost but a larger loan amount, higher monthly payments, and mortgage insurance premiums added to your bill. Putting down more money means higher upfront costs but lower monthly payments and no mortgage insurance. The choice depends on how much cash you have available and what your monthly budget can handle.

Key Takeaways

  • Down payments range from 0% to 20% depending on the loan type, with conventional loans typically requiring 3% to 5%.
  • A smaller down payment lowers your upfront cost but increases your monthly payment and adds mortgage insurance to your bill.
  • A larger down payment raises your upfront cost but lowers your monthly payment and eliminates mortgage insurance.
  • FHA loans allow 3.5% down, VA loans may allow 0% down for may be able to access veterans, and USDA loans may allow 0% down in rural areas.
  • Your down payment amount affects the interest rate your lender offers you.

How down payment size affects your monthly payment and total cost

The down payment you choose directly changes what you owe each month. On a $300,000 house at 7% interest over 30 years, a 3% down payment ($9,000) means borrowing $291,000 and paying roughly $1,935 per month in principal and interest. A 20% down payment ($60,000) means borrowing $240,000 and paying roughly $1,596 per month. The difference is about $340 per month, or $122,400 over the life of the loan.

However, a smaller down payment also triggers private mortgage insurance (PMI), which protects the lender if you stop paying. PMI typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment. On a $291,000 loan, PMI might add $120 to $360 per month. This means your actual monthly payment with 3% down could be $2,055 to $2,295, not $1,935. You pay PMI until you reach 20% equity in the home through a combination of payments and home value increases.

The total cost of borrowing more money is real. Over 30 years, borrowing an extra $51,000 (the difference between 3% and 20% down) costs you roughly $100,000 more in interest and insurance combined. But if you don't have $60,000 in cash right now, borrowing that $51,000 may be the only way to buy a house at all.

Conventional loans: 3% to 5% minimum, 20% to avoid insurance

A conventional loan is a mortgage not backed by a federal agency. Most conventional loans require a minimum down payment of 3% to 5%, though some lenders require more. The interest rate you receive depends partly on your down payment: borrowers with 20% down typically receive a lower rate than those with 5% down, because the lender's risk is lower.

If you put down less than 20%, you pay PMI. The exact cost depends on your credit score, the loan amount, and the lender. A borrower with a 750 credit score might pay 0.5% per year in PMI; a borrower with a 620 credit score might pay 1.5% per year. You can remove PMI once you reach 20% equity, either by making extra payments, waiting for your home to increase in value, or refinancing into a new loan.

Some lenders offer "lender-paid mortgage insurance" (LPMI), where the lender covers the insurance cost in exchange for a higher interest rate. This can make sense if you plan to sell or refinance within a few years, but over 30 years it usually costs more than borrowing the down payment and paying PMI yourself.

FHA loans: 3.5% down, but with mortgage insurance you keep for the life of the loan

An FHA loan is backed by the Federal Housing Administration and allows a down payment as low as 3.5%. FHA loans are designed for borrowers who have less cash saved or a lower credit score. The tradeoff is that FHA loans require mortgage insurance premiums (MIP) that you pay for the entire 30-year loan, not just until you reach 20% equity.

FHA mortgage insurance has two parts: an upfront premium (usually 1.75% of the loan amount, rolled into your monthly payment) and an annual premium (0.55% to 0.8% of the loan amount per year, also added to your monthly payment). On a $291,000 FHA loan, the upfront premium is roughly $5,100, and the annual premium is roughly $1,600 to $2,300 per year. This makes FHA loans more expensive over time than conventional loans with PMI, but they allow borrowers with less cash or lower credit scores to buy.

FHA loans have limits on how much you can borrow in your area. These limits change each year and vary by county. Your lender can tell you the current limit for your location.

VA loans and USDA loans: 0% down for may be able to access borrowers

A VA loan is available to active-duty military members, veterans, and some surviving spouses. VA loans typically require 0% down and no mortgage insurance. You pay a one-time VA funding fee (usually 1.4% to 3.6% of the loan amount, depending on your military service and down payment), which can be rolled into your monthly payment. VA loans also have no maximum loan amount in most cases, though your lender may set limits.

A USDA loan is available to borrowers buying in rural areas designated by the U.S. Department of Agriculture. USDA loans typically require 0% down and no mortgage insurance. You pay a one-time USDA may provide fee (1% of the loan amount) and an annual fee (0.35% of the loan amount per year), both rolled into your monthly payment. USDA loans have income limits and property location limits, so not all borrowers or all homes may have access to.

Both VA and USDA loans have stricter property and borrower requirements than conventional or FHA loans, and the approval process may take longer. But if you meet the requirements, they offer the lowest upfront cost of any loan type.

Saving for a down payment: what counts and what doesn't

Lenders require proof that your down payment money is yours and has been in your account for a set period, usually 60 days. This prevents you from borrowing the down payment from someone else, which would increase your actual debt. Acceptable sources include your savings account, checking account, money market account, and retirement accounts (though withdrawing from retirement accounts may trigger taxes and penalties).

Gifts from family members count toward your down payment, but the lender requires a signed gift letter stating the money is a gift, not a loan you must repay. The gift giver does not need to be a relative in all cases, but lenders have rules about who can give. Some lenders allow gifts from employers or nonprofits; others do not.

Down payment assistance programs run by state and local governments, nonprofits, and some employers may provide grants or low-interest loans for your down payment. These programs have income limits, credit score requirements, and property location requirements. Your lender or a local housing counselor can tell you which programs you may be able to use in your area.

Frequently Asked Questions

What if I don't have 20% saved?

You can buy with 3% to 5% down on a conventional loan, 3.5% down on an FHA loan, or 0% down on a VA or USDA loan if you may have access to. You'll pay mortgage insurance or a funding fee, which increases your monthly payment, but you can still become a homeowner. Many first-time buyers use this path.

Can I use a loan from a family member for my down payment?

Yes, but the lender requires a signed gift letter stating it's a gift, not a loan you must repay. The money must show up in your bank account and sit there for 60 days before closing. If it's actually a loan you'll repay, you must disclose it as debt, which lowers how much you can borrow.

Does a bigger down payment always mean a better interest rate?

Usually, yes. Lenders offer lower rates to borrowers with larger down payments because the lender's risk is lower. A borrower with 20% down typically receives a rate 0.25% to 0.5% lower than a borrower with 3% down, though this varies by lender and market conditions.

Can I remove PMI from a conventional loan?

Yes. You can request PMI removal once you reach 20% equity through a combination of payments and home value increases. Some lenders remove it automatically at 22% equity. You can also refinance into a new loan without PMI once you have enough equity.

What's the difference between PMI and MIP?

PMI (private mortgage insurance) is used on conventional loans and can be removed once you reach 20% equity. MIP (mortgage insurance premiums) is used on FHA loans and lasts the entire loan term. MIP is typically more expensive over time, but FHA loans allow lower down payments and credit scores.