What a conventional down payment is and what lenders expect

A conventional mortgage down payment is the cash you put toward a home purchase upfront, with a lender financing the rest. Conventional loans—those not backed by the Federal Housing Administration, Veterans Affairs, or the U.S. Department of Agriculture—typically require a down payment between 3% and 20% of the home's purchase price, though 20% is the threshold where you avoid paying mortgage insurance.

The lender uses your down payment to reduce their risk. If you put down 20% on a $300,000 home, you're borrowing $240,000 instead of $300,000. The larger your down payment, the less the lender stands to lose if you default and the home sells for less than you owe. This is why lenders offer better interest rates to borrowers with larger down payments.

Down payment requirements vary by lender and by your credit score and debt-to-income ratio. A borrower with a 750 credit score and stable income might may have access to for a 3% down conventional loan, while someone with a lower score might need 10% or 15%. Ask your lender what they require based on your specific financial profile.

Key Takeaways

  • Conventional down payments range from 3% to 20% of the home price, and anything below 20% triggers mortgage insurance you'll pay monthly.
  • Your credit score, debt-to-income ratio, and savings history determine what down payment percentage your lender will accept.
  • The down payment comes from your own funds—savings, gifts from family, or proceeds from selling another property—not from the lender.
  • Putting down 20% eliminates private mortgage insurance (PMI), which can save thousands over the life of the loan.
  • You'll need to show proof of funds and explain the source of your down payment to your lender before closing.

Down payment amounts and what they mean for your monthly payment

The size of your down payment directly affects your loan amount and your monthly mortgage payment. On a $300,000 home at 7% interest over 30 years, a 3% down payment ($9,000) means borrowing $291,000; a 10% down payment ($30,000) means borrowing $270,000; a 20% down payment ($60,000) means borrowing $240,000. The difference in monthly principal and interest alone is roughly $430 between the 3% and 20% scenarios.

But the real cost difference includes mortgage insurance. When you put down less than 20%, lenders require private mortgage insurance (PMI). PMI protects the lender if you stop paying, and you pay the premium as part of your monthly mortgage bill. On a $291,000 loan with 3% down, PMI might add $150 to $300 per month depending on your credit score and the lender. That insurance stays on your loan until you've paid down the balance to 80% of the original home value or you refinance.

A 10% down payment is a middle ground: you borrow less than with 3% down, so your base payment is lower, but you still pay PMI. A 20% down payment eliminates PMI entirely, which is why many borrowers aim for it even though it takes longer to save.

Where your down payment money comes from and how to document it

Your down payment must come from funds you actually own. Lenders will ask you to document the source and verify that the money is yours, not borrowed. Common sources include savings accounts, money market accounts, certificates of deposit, stocks or bonds you sell, and gifts from family members.

If you receive a gift, the lender will require a gift letter from the person giving you the money. The letter must state that the funds are a gift, not a loan, and that you have no obligation to repay them. The gift giver may also need to provide a bank statement showing they have the funds available. Some lenders allow gifts from family only; others accept gifts from employers or nonprofits. Ask your lender about their gift policy before accepting money from anyone.

Lenders will ask for bank statements covering the last two to three months to trace where your down payment came from. If you received a large deposit recently, be prepared to explain it. Unexplained deposits can delay your loan approval. If the money came from selling a car, a piece of jewelry, or an inheritance, gather documentation—a bill of sale, an appraisal, or a copy of the will or trust document—to show the lender.

Do not borrow money for your down payment, even if a friend or family member offers a personal loan. Lenders consider new debt when calculating your debt-to-income ratio, and taking on a loan right before closing can disqualify you or force you to delay the purchase.

How down payment size affects interest rates and loan terms

Lenders offer lower interest rates to borrowers with larger down payments because the risk is lower. A borrower putting down 20% has more skin in the game and is statistically less likely to default. The difference between a 3% down rate and a 20% down rate can be 0.25% to 0.75% depending on market conditions and the lender.

On a $300,000 loan, a 0.5% difference in interest rate translates to roughly $100 per month in additional principal and interest over 30 years. Over the life of the loan, that's $36,000 more in interest paid. This is why some borrowers choose to save longer for a larger down payment rather than buy sooner with a smaller one.

Loan terms can also shift based on down payment. Some lenders offer 15-year mortgages only to borrowers with 20% down, while others offer 15-year terms to anyone who qualifies. A 15-year mortgage has a higher monthly payment but you pay far less interest overall. Discuss both 15-year and 30-year options with your lender to see which fits your budget.

The difference between down payment and closing costs

Your down payment and your closing costs are separate expenses, and many first-time buyers confuse them. The down payment is the portion of the home price you're paying upfront. Closing costs are the fees charged by the lender, title company, appraiser, and other parties involved in the transaction—typically 2% to 5% of the loan amount.

On a $300,000 home with a 10% down payment, you're putting $30,000 down. Closing costs on the $270,000 loan might be $5,400 to $13,500. You'll owe both amounts at closing, though some lenders allow you to roll closing costs into the loan or negotiate with the seller to cover part of them. Budget for both separately when planning your purchase.

When to put down less than 20% and when to wait and save more

Putting down less than 20% makes sense if you're buying in a strong market, interest rates are low, and you have stable income. You get into a home sooner, build equity immediately, and can refinance later to remove PMI once you've paid down enough of the balance. If you're confident your income will grow, this strategy works.

Waiting to save 20% makes sense if you're in a weak market, interest rates are high, or your income is uncertain. You'll pay less interest overall, avoid PMI, and have a smaller monthly payment. You'll also have a larger cash cushion for emergencies and home repairs after closing. There's no single right answer—it depends on your timeline, your market, and your comfort with debt.

Some borrowers put down 10% to 15% as a compromise: they avoid the lowest rates and highest PMI costs of a 3% down loan, but they don't wait years to save 20%. This middle path works if you can afford the PMI and want to buy within the next year or two.

Frequently Asked Questions

Can I use a 401(k) or IRA withdrawal for my down payment?

Yes, but it has tax consequences. A traditional IRA withdrawal is taxed as income in the year you withdraw it. A 401(k) withdrawal may also trigger a 10% early withdrawal penalty if you're under 59½, though some plans allow loans instead. Consult a tax professional before withdrawing retirement funds—the tax bill can be substantial.

What if I don't have 3% saved yet?

Some lenders offer down payments as low as 1% to 2%, though these come with higher interest rates and PMI costs. State and local first-time homebuyer programs sometimes offer down payment grants or forgivable loans that reduce the amount you need to save. Contact your state housing finance agency or local housing authority to learn what programs exist in your area.

Does the down payment have to come from one account?

No. You can combine savings from multiple accounts, a gift, and proceeds from selling an asset. Your lender will ask you to document each source. The more sources you have, the more paperwork you'll need, so consolidate if possible before applying.

Can the seller pay my down payment for me?

No. The seller cannot pay your down payment directly. However, the seller can offer a credit toward your closing costs, which frees up your cash for the down payment. This is called a seller concession, and most lenders allow it up to a certain percentage of the purchase price.

What happens to my down payment if the deal falls through?

Your down payment is held in escrow by a title company or attorney until closing. If you walk away without a valid reason, you forfeit it to the seller. If the lender denies your loan or the inspection reveals major problems and you back out for a legitimate reason, you get your down payment back. Review your purchase agreement to understand when you can withdraw without losing the money.