Most first-time buyers do need a down payment, but it does not have to be 20 percent

You will need to put some money down on a house purchase in almost every case. The amount varies widely depending on the loan type you choose and the lender's requirements. Federal Housing Administration (FHA) loans, which are designed for first-time buyers, allow down payments as low as 3.5 percent of the purchase price. Conventional loans typically require 3 to 5 percent down for first-time buyers, though some lenders go lower. VA loans and USDA loans, if you meet their requirements, can allow zero down.

The down payment is the cash you hand over at closing. It reduces the amount you need to borrow and lowers your monthly payment. A smaller down payment means you borrow more, which increases your total interest cost over the life of the loan and usually requires you to pay mortgage insurance — an extra monthly fee that protects the lender if you stop paying.

Key Takeaways

  • FHA loans allow down payments as low as 3.5 percent, making them the most common choice for first-time buyers with limited savings.
  • Conventional loans typically require 3 to 5 percent down for first-time buyers, though some lenders offer programs with even lower minimums.
  • VA and USDA loans may allow zero down if you meet military service or rural property requirements.
  • Mortgage insurance is required on most loans with less than 20 percent down and adds to your monthly payment until you build enough equity.
  • The down payment amount you choose affects both your monthly payment and your total interest cost over the loan term.

How down payment size affects your monthly payment and total cost

A smaller down payment lowers the cash you need upfront but raises what you pay each month and over the life of the loan. On a $300,000 house, putting 3.5 percent down ($10,500) means borrowing $289,500. Putting 20 percent down ($60,000) means borrowing $240,000. The difference in monthly payment is roughly $300 to $400, depending on interest rates and loan length.

You also pay mortgage insurance on loans with less than 20 percent down. FHA mortgage insurance typically costs 0.55 percent of the loan amount per year, paid as part of your monthly payment. Conventional mortgage insurance varies by lender and your credit score but usually ranges from 0.3 to 1.5 percent per year. This insurance stays on your loan until you reach 20 percent equity (on conventional loans) or for the life of the loan (on FHA loans), depending on the loan type and how much you put down initially.

FHA loans: the most common path for first-time buyers with limited savings

FHA loans are backed by the Federal Housing Administration and are designed to make homeownership possible for buyers who cannot save a large down payment. The minimum down payment is 3.5 percent. You need a credit score of at least 580 to may have access to for the 3.5 percent option; scores between 500 and 579 require 10 percent down. FHA loans also allow gifts from family members to cover the down payment, which is useful if you do not have the cash saved yourself.

The trade-off is mortgage insurance. FHA loans require both an upfront mortgage insurance premium (paid at closing or rolled into your loan) and an annual mortgage insurance premium paid monthly. This insurance does not go away after you reach 20 percent equity — it stays for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more, the insurance drops after 11 years.

Conventional loans and first-time buyer programs

Conventional loans are not backed by the government and are issued by banks and mortgage companies. They typically require 3 to 5 percent down for first-time buyers, though some lenders offer programs with 3 percent or even lower minimums. Conventional loans require mortgage insurance if you put down less than 20 percent, but the insurance can be removed once you reach 20 percent equity in the home.

Many lenders offer first-time buyer programs that reduce the down payment requirement or offer other concessions. These programs vary by lender and by state. Some programs offer down payment assistance in the form of grants or forgivable loans, which means you receive money to help cover the down payment and do not have to repay it. Check with local housing finance agencies and nonprofits in your area to learn what programs exist where you live.

VA and USDA loans: zero down if you meet the requirements

If you are a veteran or active-duty service member, a VA loan allows you to buy a home with zero down. VA loans are may provide by the Department of Veterans Affairs and have no mortgage insurance requirement. You pay a one-time funding fee (usually 2.3 percent of the loan amount) instead, which can be rolled into the loan itself.

USDA loans are for rural property purchases and are available to borrowers with low to moderate income who meet citizenship requirements. USDA loans also allow zero down and have no mortgage insurance. Like VA loans, they charge a may provide fee instead, which is typically 2 percent of the loan amount and can be included in the loan.

What happens if you cannot save a down payment right now

If you do not have savings for a down payment, you have several options. Family members can gift you money toward the down payment on FHA and conventional loans — the gift does not have to be repaid and does not count as debt on your application. Some employers offer down payment assistance as an employee benefit. Nonprofits and local housing agencies in your area may offer grants or forgivable loans specifically for first-time buyers.

You can also continue saving while you improve your credit score, which will lower your interest rate and reduce your monthly payment. Even a few months of saving and credit improvement can make a meaningful difference in your loan terms. If you are a veteran or buying a rural property, pursuing a VA or USDA loan eliminates the down payment requirement entirely.

Down payment versus closing costs: two separate expenses

The down payment is not the only cash you need at closing. Closing costs typically run 2 to 5 percent of the purchase price and cover appraisal fees, title insurance, attorney fees, inspections, and other expenses. On a $300,000 house, closing costs could be $6,000 to $15,000 in addition to your down payment.

Some loan programs allow you to roll closing costs into the loan amount, which means you do not pay them upfront. FHA loans often allow this. Conventional loans may allow it depending on the lender. Ask your lender whether closing costs can be included in your loan or whether you must pay them separately at closing.

Frequently Asked Questions

Can I use a credit card or loan to pay for my down payment?

No. Lenders require that your down payment come from your own savings, a gift from a family member, or a down payment assistance program. Taking out a loan or using a credit card to fund the down payment will disqualify you because it increases your debt-to-income ratio and signals financial risk to the lender.

What if I put down less than 3 percent?

Most lenders do not offer conventional loans with less than 3 percent down for first-time buyers. Your options are FHA loans (3.5 percent minimum), VA loans (zero down if may be able to access), or USDA loans (zero down if may be able to access). Some credit unions and community banks may offer lower minimums, but these are rare and usually require excellent credit and a strong income.

Does a larger down payment always mean a better loan?

A larger down payment lowers your monthly payment and total interest cost, but it also means less cash in your pocket for emergencies or home repairs. The best down payment amount depends on your financial situation. If putting down 20 percent leaves you with no emergency savings, a smaller down payment and mortgage insurance may be the smarter choice.

Can I remove mortgage insurance after I build equity?

On conventional loans, yes — mortgage insurance can be removed once you reach 20 percent equity. On FHA loans, it depends on your down payment. If you put down 10 percent or more, FHA insurance drops after 11 years. If you put down less than 10 percent, the insurance stays for the life of the loan.

What if my down payment gift comes with strings attached?

Lenders require a signed gift letter stating that the money is a gift and does not need to be repaid. If the gift comes with an expectation of repayment, it counts as a loan and increases your debt, which can disqualify you. Make sure the gift letter is clear and signed by both you and the person giving the gift.