The amount depends on the loan type and what you can afford to lose

There is no single right answer, because down payment size depends on three things: the loan program you may have access to for, the purchase price of the property, and how much cash you can afford to set aside without breaking your emergency fund. A conventional loan often requires 20 percent of the purchase price, but FHA loans go as low as 3.5 percent, and VA loans may require zero. The lower your down payment, the more you borrow, the higher your monthly payment, and the more interest you pay over the life of the loan.

The practical floor is usually 3 to 5 percent for most borrowers, because loans below that threshold trigger mortgage insurance—a monthly fee added to your payment that protects the lender if you default. That insurance stays on your loan until you build enough equity (usually 20 percent) to request removal. Saving more upfront means a smaller loan, lower monthly payments, and no insurance cost.

Key Takeaways

  • FHA loans accept 3.5 percent down, conventional loans typically require 10 to 20 percent, and VA loans may require nothing—but each has different costs and restrictions.
  • Any down payment below 20 percent triggers mortgage insurance, which adds $100 to $300+ per month depending on loan size and your credit score.
  • Your down payment should not drain your emergency fund; most financial advisors recommend keeping three to six months of expenses in savings after closing.
  • The purchase price of the home determines the dollar amount—a 10 percent down payment on a $300,000 home is $30,000, but on a $500,000 home it is $50,000.
  • Closing costs (typically 2 to 5 percent of the purchase price) are separate from the down payment and must be budgeted separately.

How down payment percentage translates to actual dollars

Down payment is calculated as a percentage of the home's purchase price. If you are buying a $300,000 home and putting down 10 percent, that is $30,000. At 20 percent, it is $60,000. The same percentage on a $500,000 home would be $50,000 and $100,000 respectively.

To find your target number, multiply the purchase price by the percentage you are aiming for. If you have not yet found a home, use the median price in your area as a rough estimate. Real estate websites and your local assessor's office publish these figures by neighborhood.

Remember that your down payment is separate from closing costs. Closing costs typically run 2 to 5 percent of the purchase price and cover appraisals, title insurance, inspections, and lender fees. You will need to budget for both.

What each loan type actually requires

FHA loans (Federal Housing Administration) accept down payments as low as 3.5 percent and are designed for first-time buyers or those with lower credit scores. The tradeoff is that FHA loans require mortgage insurance for the life of the loan, not just until you reach 20 percent equity. This insurance costs roughly 0.55 percent of the loan amount annually, added to your monthly payment.

Conventional loans typically require 10 to 20 percent down, depending on your credit score and debt-to-income ratio. Loans with less than 20 percent down require private mortgage insurance (PMI), which costs 0.5 to 1.5 percent of the loan annually. Once you reach 20 percent equity through payments or home appreciation, you can request PMI removal.

VA loans (for military members, veterans, and surviving spouses) often require zero down payment. There is no mortgage insurance, but there is a funding fee (typically 1.4 to 3.6 percent of the loan amount) that can be rolled into the loan or paid upfront.

USDA loans (for rural properties) also allow zero down payment for borrowers who meet income limits. Like VA loans, they carry a funding fee instead of mortgage insurance.

The real cost of putting down less than 20 percent

Mortgage insurance is the hidden expense that makes a smaller down payment more expensive than it first appears. On a $300,000 home with 10 percent down ($30,000), you are borrowing $270,000. With a 7 percent interest rate and 30-year term, your base payment is roughly $1,797 per month. Add PMI of about $135 per month, and your actual payment is $1,932.

If you had saved 20 percent ($60,000) instead, you would borrow $240,000, and your payment would be $1,597 without insurance. That is $335 per month less—or $4,020 per year. Over five years, that is $20,100 in savings, not counting the interest you avoid by borrowing less.

The math changes if you plan to move or refinance within five to seven years. In that case, the extra insurance cost may be worth it to buy sooner and build equity in a home rather than rent. But if you plan to stay long-term, saving the extra 10 percent usually pays for itself.

Balancing down payment against your emergency fund

The largest mistake is saving for a down payment by draining your emergency fund. After closing, you will face unexpected costs: a furnace breaks, the roof leaks, the inspection reveals foundation issues. If you have no cash left, you end up taking on high-interest debt or missing payments on the new mortgage.

Most financial advisors recommend keeping three to six months of household expenses in savings after you close on the home. Calculate your monthly expenses (mortgage, insurance, utilities, food, transportation, minimum debt payments), multiply by three or six, and do not touch that money for the down payment.

If saving 20 percent down would wipe out your emergency fund, save 10 percent instead and accept the mortgage insurance cost. The insurance is temporary; an empty emergency fund is a crisis waiting to happen.

How to decide between saving more now or buying sooner

The choice between a larger down payment and buying sooner depends on three factors: how fast home prices are rising in your area, how much rent you are currently paying, and how long you plan to stay in the home.

If you are renting for $2,000 per month and home prices are rising 5 percent per year, waiting two years to save an extra $30,000 may cost you more in rent ($48,000) than you save on interest. In that case, buying sooner with a smaller down payment makes sense. If you are renting cheaply or prices are flat, waiting to save more reduces your long-term interest cost.

If you plan to stay fewer than five years, the mortgage insurance cost matters less because you will not be in the loan long enough to recoup the savings. If you plan to stay longer than seven years, saving the extra 10 percent usually wins financially.

Where down payment money typically comes from

Most buyers save from paychecks over time, but other sources exist. Some employers offer down payment assistance programs. Some states and cities run down payment grant programs for first-time buyers or low-income households—these are not loans and do not need to be repaid, though they often come with restrictions on which neighborhoods or price ranges may have access to.

Family gifts are common and are allowed by most lenders, though you will need a signed letter from the gift-giver stating it is a gift, not a loan. Some lenders require the gift-giver to have a relationship to you (parent, grandparent, sibling), while others accept gifts from anyone.

Borrowing from a 401(k) or IRA is possible but risky—you lose years of compound growth and face taxes and penalties if you cannot repay. Avoid this unless you have exhausted other options.

Frequently Asked Questions

Can I use a gift from family for my down payment?

Yes. Most lenders allow down payment gifts from family members, though some require proof of relationship. The gift-giver must sign a letter stating it is a gift, not a loan you will repay. Your lender will ask for bank statements showing the money arrived in your account.

What happens if I put down less than 3 percent?

Most conventional lenders will not go below 3 percent. FHA loans go to 3.5 percent. Below that, you would need a portfolio lender (usually a bank holding its own loans) or a non-traditional program, which are rare and carry higher interest rates and stricter requirements.

Can I remove mortgage insurance before I reach 20 percent equity?

Conventional PMI can be removed once you reach 20 percent equity through a combination of payments and home appreciation. You must request removal in writing; lenders do not do it automatically. FHA mortgage insurance stays for the life of the loan unless you refinance into a conventional loan later.

Should I use my tax refund for a down payment?

Only if it does not leave you short on emergency savings. A tax refund is money you overpaid during the year, so it is not extra income—it is your own money returned. If using it would drop your emergency fund below three months of expenses, wait and save from paychecks instead.

Does a larger down payment improve my loan terms?

Yes. A larger down payment typically lowers your interest rate by 0.25 to 0.5 percent because you are borrowing less and pose less risk to the lender. It also eliminates mortgage insurance entirely. Both reduce your monthly payment and total interest paid over the loan term.