A first-time home buyer down payment is the money you put toward the purchase price upfront, with the lender covering the rest through a mortgage
When you buy a home, you do not pay the full price in cash. Instead, you make a down payment — your own money — and borrow the rest. The lender (usually a bank or mortgage company) lends you that borrowed amount, which you repay over 15, 20, or 30 years with interest.
For first-time buyers, down payments typically range from 3% to 20% of the home's purchase price. A $300,000 home with a 5% down payment means you pay $15,000 upfront and borrow $285,000. The size of your down payment affects your monthly payment, the interest rate you receive, and whether you pay mortgage insurance.
Down payments come from your own savings, gifts from family members, or specific first-time buyer programs. Some programs allow down payments as low as 3%; others require 5% or more. The exact requirement depends on the lender, the loan type, and your credit score.
Key Takeaways
- Your down payment is the percentage of the home price you pay in cash, with the lender covering the rest through a mortgage loan.
- First-time buyers can put down as little as 3% with certain loan programs, though 5% to 10% is more common.
- A larger down payment lowers your monthly mortgage payment and may help you avoid mortgage insurance, but it is not required to buy a home.
- Down payment money can come from your savings, family gifts, or first-time buyer assistance programs offered by state and local governments.
- The down payment amount you choose affects your interest rate, loan terms, and total cost of the home over time.
How down payment size affects your mortgage and monthly payment
The larger your down payment, the less you borrow, which lowers your monthly mortgage payment. On a $300,000 home at 7% interest over 30 years, a 3% down payment ($9,000) means you borrow $291,000 and pay roughly $1,935 per month. A 20% down payment ($60,000) means you borrow $240,000 and pay roughly $1,596 per month — a difference of about $340 each month.
Down payment size also affects your interest rate. Lenders often offer lower rates to buyers who put down 10%, 15%, or 20% because they see less risk. A buyer with a smaller down payment may pay a slightly higher rate, which compounds over the life of the loan.
If you put down less than 20%, most lenders require you to pay private mortgage insurance (PMI). This is an additional monthly cost — typically 0.5% to 1.5% of your loan amount per year — that protects the lender if you stop paying. PMI ends once you have paid down the loan to 80% of the home's original value, which can take years.
Minimum down payments for first-time buyers
The minimum down payment varies by loan type. Conventional loans (not backed by the government) typically require 3% to 5% down for first-time buyers with good credit. FHA loans (backed by the Federal Housing Administration) allow down payments as low as 3.5%. VA loans (for military members and veterans) often require 0% down. USDA loans (for rural properties) also may require 0% down for those who meet income limits.
A lower minimum down payment makes homeownership reachable sooner, but it also means a higher monthly payment and the cost of mortgage insurance. Some first-time buyers choose to put down 5% or 10% to reduce PMI costs, even if the lender allows 3%.
Your credit score, debt-to-income ratio, and savings history all affect which loan types you may have access to for and what down payment the lender will accept. A score below 620 may disqualify you from conventional loans, but FHA loans may still be available.
Where down payment money comes from
Down payment funds must come from sources you own or that are given to you. Most lenders require you to document where the money came from — bank statements, investment account statements, or a gift letter if family members are helping.
Lenders do not allow you to borrow the down payment from another lender or credit card. The money must be your own or a genuine gift. If a family member gives you money, they typically sign a gift letter stating it is a gift, not a loan you will repay.
Some states and cities offer down payment assistance programs for first-time buyers. These may be grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set time), or low-interest loans. Your state housing finance agency or local housing authority can tell you what programs exist in your area.
Down payment assistance programs and grants
Many states and local governments run programs that help first-time buyers cover down payments. These programs vary widely by location. Some cover 3% to 5% of the purchase price; others cover up to 15% or more. Some are grants; others are loans with low or no interest.
To find programs in your area, contact your state housing finance agency or search the HUD website for local resources. Your mortgage lender may also know which programs work with their loans. Some programs require you to complete a homebuyer education course before you can use them.
may be able to access for these programs typically depends on your income (usually capped at 80% to 120% of the area median income), your credit score, and whether you have owned a home in the past three years. Income limits and requirements change by program and by year.
What happens if you cannot save a full down payment
You do not need to wait until you have saved 20% to buy a home. Many first-time buyers put down 3% to 10% and pay mortgage insurance until they reach 20% equity. This lets you build equity in a home while you continue saving, rather than renting and saving for years.
If your savings are very small, a down payment assistance program may be your fastest path. These programs exist specifically to help buyers who cannot save a large down payment on their own. Applying takes time — usually several weeks — so start the process early.
Another option is to look for a lower-priced home that fits your current savings. A $250,000 home with 5% down costs $12,500 upfront; a $350,000 home with 5% down costs $17,500. Starting with a more affordable property can get you into homeownership sooner and let you build equity while you save.
Closing costs and other money you need besides the down payment
The down payment is only part of the money you need to close on a home. Closing costs — which include appraisal fees, title insurance, loan origination fees, and attorney fees — typically run 2% to 5% of the purchase price. On a $300,000 home, closing costs may be $6,000 to $15,000.
Some lenders allow you to roll closing costs into your mortgage, which means you do not pay them upfront but you pay interest on them over time. Other lenders require you to pay them at closing. Ask your lender which costs you must pay in cash and which can be financed.
Budget for both your down payment and closing costs before you start house hunting. If you have saved $20,000 and are looking at a $300,000 home with 5% down ($15,000), you may not have enough left for closing costs. A down payment assistance program may help cover one or both.
Frequently Asked Questions
Can a family member give me money for a down payment?
Yes. The money must be a genuine gift, not a loan. Your lender will ask the family member to sign a gift letter stating the money is a gift and you do not have to repay it. The lender will also verify the money came from the family member's account, not from another loan.
What if I put down less than 20% — do I have to pay mortgage insurance forever?
No. Mortgage insurance ends once you have paid your loan down to 80% of the home's original purchase price. On a $300,000 home, that means once you owe $240,000 or less. You can also request removal once you reach 20% equity if you have paid on time and your home has not dropped in value.
Do I need a down payment to buy a home?
No. VA loans and USDA loans allow 0% down for those who meet requirements. FHA loans allow 3.5% down. Conventional loans typically require at least 3% down. You do need some down payment for most loans, but it does not have to be 20%.
Can I use a 401(k) or IRA to pay for a down payment?
Some retirement accounts allow withdrawals for a first-time home purchase. A traditional or Roth IRA allows you to withdraw up to $10,000 lifetime for a first-time home purchase without the early withdrawal penalty (though you may owe income tax). A 401(k) may allow a loan against your balance. Talk to your plan administrator and a tax professional before withdrawing.
What if I do not have enough saved for a down payment?
Look for down payment assistance programs in your state or city — many offer grants or low-interest loans. You can also put down 3% to 5% and pay mortgage insurance, which you can remove later once you reach 20% equity. Some buyers also choose a lower-priced home that fits their current savings.