The down payment amount depends on your loan type, not a fixed rule
There is no single correct down payment. The amount you put down depends on which loan program you use, what you can afford to keep in reserves, and what monthly payment you can sustain. A conventional loan typically requires 3% to 20% down. An FHA loan requires 3.5% down. A VA loan (if you may have access to) requires 0% down. A USDA loan (for rural properties) also requires 0% down. The lender will tell you the minimum for your specific loan type, but the minimum is not always the best choice for your situation.
Putting down more money lowers your monthly payment and reduces the total interest you pay over the life of the loan. Putting down less preserves cash for closing costs, repairs, and emergencies. The real question is not "what should I put down" but "what can I afford to put down while still having money left over when I close."
Key Takeaways
- Conventional loans require a minimum of 3% down, but you will pay mortgage insurance (PMI) until you reach 20% equity, which adds $100 to $300+ per month to your payment.
- FHA loans require 3.5% down and charge mortgage insurance for the life of the loan, making them cheaper upfront but more expensive long-term than conventional loans at higher down payments.
- VA and USDA loans require 0% down if you meet the program requirements, but you still need cash for closing costs and inspections.
- The amount you put down should leave you with three to six months of expenses in savings after closing, because homeownership brings unexpected costs.
- A larger down payment lowers your monthly payment and total interest, but only if you have the cash without borrowing it or draining your emergency fund.
How down payment size affects your monthly payment and insurance
Every percentage point of down payment reduces the loan amount and therefore your monthly principal and interest payment. On a $300,000 house, the difference between 3% down and 20% down is roughly $51,000 in borrowed money. At a 7% interest rate over 30 years, that difference is approximately $340 per month in principal and interest alone.
If you put down less than 20% on a conventional loan, you will pay private mortgage insurance (PMI). PMI protects the lender if you stop paying, and it costs between 0.5% and 1.5% of your loan amount per year, divided into your monthly payment. On a $285,000 loan (3% down on a $300,000 house), PMI might add $120 to $360 per month. PMI drops off automatically once you reach 20% equity in the home, either through payments or appreciation.
FHA loans charge mortgage insurance differently. You pay an upfront insurance premium (1.75% of the loan amount) at closing, and then an annual insurance premium (0.55% to 0.8% of the loan amount) for the life of the loan. This makes FHA loans cheaper at closing but more expensive over time than a conventional loan with PMI, because you cannot remove the insurance by building equity.
When a smaller down payment makes sense
A smaller down payment is the right choice if you have limited savings and a stable income. Putting 3% down on a conventional loan or 3.5% down on an FHA loan lets you buy sooner and preserves cash for closing costs (typically 2% to 5% of the purchase price), inspections, appraisals, and immediate repairs. If the house needs a new roof or the furnace fails in your first winter, you need money to pay for it without taking on debt.
A smaller down payment also makes sense if interest rates are low and you can invest the money you did not put down at a higher return. This is rare in most market conditions, but it is worth calculating with a financial advisor if you have investment experience.
If you are a first-time buyer with a steady job and good credit, a 3% to 5% down payment on a conventional loan is often the practical choice. You will pay PMI, but the monthly cost is usually less than the benefit of keeping cash in the bank.
When a larger down payment makes sense
A larger down payment (10% to 20%) makes sense if you have substantial savings, no high-interest debt, and a six-month emergency fund already in place. The monthly payment savings are real: putting 10% down instead of 3% saves roughly $170 per month on principal, interest, and PMI combined on a $300,000 house. Over 30 years, that is $61,000.
Putting down 20% or more eliminates PMI entirely and gives you the lowest possible monthly payment. If you can reach 20% without depleting your savings, the long-term cost savings justify it. However, if reaching 20% means you have less than three months of expenses in reserve, stick with a smaller down payment and keep the cash.
A larger down payment also reduces the risk of being underwater on the loan (owing more than the house is worth) if the market declines. This matters less if you plan to stay in the house for 10+ years, but it is a real consideration in volatile markets.
How to calculate what you can actually afford to put down
Start with the total cash you have available. Subtract closing costs (get a loan estimate from your lender to see the exact amount). Subtract the down payment you are considering. What is left? That is your post-closing cash reserve. If it is less than three months of your total monthly expenses (mortgage, utilities, insurance, food, transportation, debt payments), your down payment is too large.
For example: You have $60,000 saved. Closing costs will be $12,000. Your monthly expenses are $5,000. Three months of expenses is $15,000. If you put down $40,000, you have $8,000 left ($60,000 − $12,000 − $40,000). That is not enough. If you put down $30,000, you have $18,000 left, which covers your emergency fund and gives you a small buffer. That is the right down payment for your situation.
This calculation changes if you have a co-borrower with separate income or if you have access to a line of credit. But the principle is the same: your down payment should not leave you broke at closing.
Down payment requirements by loan type
| Loan Type | Minimum Down Payment | Mortgage Insurance | Who Qualifies |
|---|---|---|---|
| Conventional | 3% to 5% (some lenders require 5%) | PMI required below 20% down; drops off automatically at 20% equity | Good credit (usually 620+), stable income, debt-to-income ratio under 43% |
| FHA | 3.5% | Upfront insurance (1.75%) plus annual insurance (0.55%–0.8%) for life of loan | Credit score 580+, debt-to-income ratio under 43%, first-time buyer or past hardship |
| VA | 0% | VA funding fee (1.4%–3.6% of loan amount); no PMI | Active duty, veteran, or surviving spouse with Certificate of may be able to access |
| USDA | 0% | USDA may provide fee (1% upfront, 0.35% annually); no PMI | Rural property, income at or below area median, U.S. citizen or permanent resident |
What happens if you put down too little or too much
If you put down too little, your monthly payment becomes unaffordable or you drain your emergency fund before the first winter. You end up taking on credit card debt or a personal loan to cover repairs, which defeats the purpose of buying a house. Lenders will reject your application if your debt-to-income ratio (all monthly debt payments divided by gross monthly income) exceeds 43%, so there is a hard floor on how small your down payment can be.
If you put down too much, you lose liquidity. Money in a house is harder to access than money in a savings account. If you lose your job or face a medical emergency, you cannot easily pull that money out without refinancing or taking a home equity loan, both of which take time and cost money. You also miss the opportunity to invest that cash elsewhere.
The goal is the middle ground: put down enough to keep your payment manageable and avoid excessive mortgage insurance, but not so much that you are vulnerable to the next unexpected expense.
Frequently Asked Questions
Can I borrow my down payment from family or a credit card?
Most lenders will not allow it. Conventional and FHA loans require that your down payment come from your own funds, not borrowed money. If a family member gives you money as a gift, the lender will ask for a gift letter stating it does not need to be repaid. If you borrow the money, the lender will count it as a debt and your debt-to-income ratio will likely exceed the 43% limit.
What if I put down 5% instead of 3%? Does it make a big difference?
Yes. On a $300,000 house, the difference is $6,000 in down payment and roughly $40 less per month in PMI. Over five years (when you might refinance or sell), that is $2,400 in insurance savings. If you have the cash and it does not deplete your emergency fund, 5% is usually better than 3%.
Do I have to put down the minimum, or can I put down more later?
You put down the full amount at closing. You cannot close with 3% down and add more later. However, once you own the home, you can make extra principal payments or refinance to remove PMI once you reach 20% equity, which may happen faster than you expect if the market appreciates.
What if the house appraises for less than the purchase price?
If the appraisal comes in low, your down payment percentage increases automatically (because you are borrowing less), which can actually help you. For example, if you agreed to pay $300,000 with 5% down ($15,000) but it appraises at $280,000, you are now putting down 5.4%. This does not change your payment, but it may help you reach 20% equity faster.
Should I wait to save more for a bigger down payment?
Only if you are close to your goal and housing prices are stable in your area. If you are two years away from 20% down and prices are rising 5% per year, waiting costs you more than the PMI you would pay now. Run the numbers with a mortgage calculator or talk to a loan officer who can show you the total cost of waiting versus buying now with a smaller down payment.