The amount you need depends on the loan type, not a fixed rule
There is no single down payment amount that works for everyone. A conventional loan from a bank often requires 20 percent of the home's purchase price, but Federal Housing Administration (FHA) loans let you put down as little as 3.5 percent. Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans in rural areas may require zero down. The lender you choose, the type of loan they offer, and the price of the home you want determine what you actually need to save.
The math is straightforward once you pick a loan type: multiply the home price by the down payment percentage. On a $300,000 home with a 20 percent conventional loan, you need $60,000. On the same home with an FHA loan at 3.5 percent, you need $10,500. The difference is real money in your savings account before you make an offer.
Key Takeaways
- Conventional loans typically require 20 percent down, but FHA loans allow 3.5 percent, VA loans allow zero percent, and USDA loans allow zero percent in may be able to access rural areas.
- Putting down less than 20 percent on a conventional loan means you will pay private mortgage insurance (PMI) monthly until you reach 20 percent equity in the home.
- Your down payment is separate from closing costs, which typically run 2 to 5 percent of the home price and come due at signing.
- The lowest down payment option is not always the cheapest over time because of insurance costs and interest rates that vary by loan type.
- Lenders verify your down payment comes from your own savings or a gift, not from a loan, so the money must be in your bank account before you apply.
What happens when you put down less than 20 percent
If you borrow more than 80 percent of the home's value on a conventional loan, the lender requires you to carry private mortgage insurance (PMI). This is a monthly fee added to your mortgage payment that protects the lender if you stop paying. PMI typically costs 0.5 to 1.5 percent of the loan amount per year, split into monthly payments. On a $240,000 loan (20 percent down on a $300,000 home), PMI might add $100 to $300 per month.
You keep paying PMI until you own 20 percent of the home's value. If the home appreciates or you pay down the principal faster, you can request PMI removal once you hit that threshold. If the home loses value, you may be stuck with PMI longer. FHA loans work differently: they charge an upfront mortgage insurance premium (1.75 percent of the loan amount) and a monthly insurance fee that does not go away for the life of the loan unless you put down 10 percent or more.
Down payment amounts for different loan types
| Loan Type | Minimum Down Payment | Who Offers It | Key Requirement |
|---|---|---|---|
| Conventional | 3 to 20 percent | Banks, credit unions, mortgage companies | Credit score typically 620 or higher; PMI required below 20 percent |
| FHA | 3.5 percent | FHA-approved lenders | Credit score typically 580 or higher; mortgage insurance required for life of loan |
| VA | Zero percent | VA-approved lenders | Active military, veteran, or surviving spouse with Certificate of may be able to access |
| USDA | Zero percent | USDA-approved lenders | Property must be in may be able to access rural area; income limits apply by county |
Closing costs are separate from your down payment
Your down payment is only part of the money you need at closing. Closing costs cover the lender's fees, title insurance, appraisal, inspection, and recording fees. These typically run 2 to 5 percent of the home price and are due on the day you sign the mortgage. On a $300,000 home, closing costs might be $6,000 to $15,000.
Some lenders allow you to roll closing costs into the loan, which means you do not pay them upfront but you pay interest on them over 30 years. Others require you to pay them in cash at closing. Ask your lender which costs are required upfront and which can be financed. Your total cash needed at closing is your down payment plus any closing costs you cannot roll into the loan.
How to figure out what you can actually afford to save
Start by deciding which loan type fits your situation. If you are a veteran or buying in a rural area, a zero-down loan might be available to you. If not, compare the cost of a 3.5 percent FHA down payment plus lifetime mortgage insurance against a 10 or 15 percent conventional down payment plus PMI for a few years. A mortgage calculator can show you the monthly payment difference.
Next, work backward from the home price you want. If you want a $300,000 home and can put down 10 percent, you need $30,000 plus closing costs. If you can only save $20,000, you are looking at a $200,000 home or an FHA loan on a higher-priced home. Be honest about your timeline: saving $500 per month takes four years to reach $24,000. If you need the money sooner, a lower down payment with PMI may be your only option.
Lenders will ask to see your bank statements for the last two months to verify the down payment is yours, not borrowed. Gifts from family are allowed, but the giver must sign a gift letter stating it does not need to be repaid. Money from a personal loan, credit card, or line of credit disqualifies you because it increases your debt-to-income ratio and signals risk to the lender.
The real cost of a smaller down payment over time
Putting down 3.5 percent instead of 20 percent on a $300,000 home means borrowing an extra $49,500. At a 7 percent interest rate over 30 years, that extra borrowing costs roughly $165,000 in additional interest and insurance fees combined. The monthly payment difference is real: $1,197 per month on a $240,000 loan versus $1,596 per month on a $289,500 loan.
However, if you cannot save $60,000 and waiting five years to buy means missing out on a home you want, or if rents in your area are rising faster than you can save, a smaller down payment might be the right choice. The cost of waiting is not always lower than the cost of borrowing. Compare your specific numbers: what does it cost to rent for another year or two, and what does it cost to borrow more and pay PMI?
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes. The person giving you the money must sign a gift letter stating the funds do not need to be repaid. The lender will ask to see the gift letter and your bank statements showing the money arrived. Some lenders limit how much of your down payment can be a gift; ask your lender before accepting money from family.
What if I only have enough for 5 percent down on a conventional loan?
You can do it, but you will pay PMI until you reach 20 percent equity. The monthly PMI cost will be higher than on a 10 or 15 percent down payment. Compare the total monthly payment (mortgage plus PMI) to see if an FHA loan at 3.5 percent is cheaper, since FHA insurance is sometimes lower for very small down payments.
Do I need to save the down payment and closing costs separately?
No, they come from the same pool of money. If you have $40,000 saved and closing costs are $8,000, you have $32,000 for your down payment. Some lenders allow you to finance closing costs into the mortgage, which frees up more cash for the down payment itself.
What if the home appraises for less than the purchase price?
If the appraisal comes in low, your down payment percentage goes up because you are borrowing against a lower value. On a $300,000 purchase that appraises at $280,000, a 20 percent down payment is now $56,000 instead of $60,000. You may need to pay the difference in cash, renegotiate the price, or walk away from the deal.
Can I borrow my down payment from a 401(k) or retirement account?
Some plans allow loans against your balance, but the lender will count this as debt when calculating your debt-to-income ratio, which may lower the amount you can borrow for the mortgage. Withdrawals before age 59½ usually trigger taxes and penalties. Talk to your plan administrator and your lender before taking this route.