A down payment is the cash you give the seller at closing, and it's the only part of the home price you pay out of pocket—the rest comes from a loan.

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; a 20% down payment on the same home means $60,000. The percentage you put down affects your monthly mortgage payment, the interest rate you're offered, and whether you'll pay mortgage insurance on top of your loan.

The down payment is separate from closing costs—those are additional fees (title insurance, appraisal, inspection, attorney fees) that typically run 2% to 5% of the purchase price and are often paid at closing as well. Many first-time buyers confuse the two and come to closing unprepared for the total cash needed.

Key Takeaways

  • Down payments for first-time buyers range from 3% to 20% depending on the loan type, and lower percentages mean higher monthly payments and mortgage insurance costs.
  • FHA loans allow down payments as low as 3.5%, while conventional loans typically require 5% to 20%, and VA or USDA loans may require 0% down if you meet the criteria.
  • Putting down less than 20% triggers private mortgage insurance (PMI), which adds $100 to $300+ per month to your payment until you reach 20% equity.
  • Closing costs are separate from your down payment and usually total 2% to 5% of the purchase price, so budget for both.
  • Some first-time buyer programs offer down payment assistance through grants or forgivable loans, but availability and rules vary by state and county.

How down payment percentage affects your monthly cost

The lower your down payment, the larger your loan, and the higher your monthly mortgage payment. On a $300,000 home at 7% interest over 30 years, a 3% down payment ($9,000) means a loan of $291,000 and a monthly payment around $1,935 before taxes and insurance. A 20% down payment ($60,000) means a loan of $240,000 and a monthly payment around $1,596—roughly $340 less per month.

That difference compounds over 30 years. But the real cost of a low down payment isn't just the higher monthly payment—it's the mortgage insurance you'll pay until you own 20% of the home. With a 5% down payment, you're paying mortgage insurance on top of your regular payment, adding $150 to $400 per month depending on the loan size and your credit score. That insurance protects the lender, not you, and it disappears once you reach 20% equity.

Down payment requirements by loan type

FHA loans (Federal Housing Administration) allow down payments as low as 3.5% and are designed for first-time buyers with lower credit scores or limited savings. The tradeoff is that FHA loans charge mortgage insurance for the life of the loan, not just until you reach 20% equity. This insurance costs roughly 0.55% of your loan amount annually.

Conventional loans typically require 5% to 20% down. With less than 20% down, you pay private mortgage insurance (PMI) until you reach 20% equity. Once you hit that threshold, you can request PMI removal if your home hasn't declined in value. Conventional loans usually offer better interest rates than FHA loans if your credit score is 680 or higher.

VA loans (for military members, veterans, and surviving spouses) often require 0% down, meaning no down payment at all. USDA loans (for rural homebuyers) also allow 0% down in many cases. Both programs have specific may be able to access requirements and geographic restrictions, but if you may have access to, they eliminate the down payment barrier entirely.

Where first-time buyers find down payment money

Personal savings is the most common source, but many first-time buyers use a combination of sources. Some withdraw from a 401(k) or IRA—the IRS allows first-time homebuyers to withdraw up to $10,000 from a traditional IRA penalty-free, though you'll still owe income tax on the withdrawal. A 401(k) withdrawal is more complex and may trigger a loan requirement instead of a withdrawal.

Family gifts are another route. Many lenders allow a parent or relative to gift down payment money as long as the gift is documented in writing and the lender confirms it's a gift, not a loan you'll have to repay. Some programs require the gift-giver to sign a statement saying they have no claim to the home.

Down payment assistance programs exist in many states and counties, though availability and rules vary widely. Some offer grants (money you don't repay), others offer forgivable loans (you repay only if you sell within a certain period), and some offer below-market-rate loans. Your local housing authority, nonprofit housing organizations, or your state's housing finance agency can tell you what's available in your area.

Mortgage insurance and when it ends

If you put down less than 20%, you'll pay mortgage insurance—either PMI (private mortgage insurance) on conventional loans or MIP (mortgage insurance premium) on FHA loans. PMI typically costs 0.5% to 1.5% of your loan amount annually, divided into monthly payments. On a $240,000 loan, that's $100 to $300 per month.

PMI ends automatically once you reach 20% equity in your home through a combination of payments and home appreciation. You can also request removal once you hit 20% equity, though your lender may require a new appraisal to confirm the home's current value. FHA mortgage insurance, by contrast, stays for the life of the loan if you put down less than 10%, making FHA loans more expensive long-term despite the lower down payment requirement.

Closing costs and the total cash you need

Closing costs are separate from your down payment and cover the lender's fees, title insurance, appraisal, inspection, attorney fees, and property taxes. They typically run 2% to 5% of the purchase price. On a $300,000 home, that's $6,000 to $15,000 on top of your down payment.

Some lenders allow you to roll closing costs into your loan, which means you don't pay them upfront but you pay interest on them over 30 years. This increases your monthly payment but reduces the cash you need at closing. Ask your lender whether this option is available and what it costs in extra interest.

A few lenders or programs offer closing cost assistance for first-time buyers, but this is less common than down payment help. Always ask your lender and your local housing authority what's available before you assume you have to pay the full amount out of pocket.

How to decide what down payment to make

The right down payment depends on three things: how much cash you have available, what your monthly budget can handle, and how long you plan to stay in the home. If you have enough savings to put down 20% without draining your emergency fund, that's usually the best choice—you avoid mortgage insurance and get the lowest interest rate.

If you have limited savings, a 3% to 5% down payment lets you buy sooner and build equity while you continue saving. The mortgage insurance is an extra cost, but it's often worth it to stop paying rent and start building ownership. Just make sure your monthly payment (including insurance, taxes, and homeowners insurance) doesn't exceed 28% to 31% of your gross monthly income—that's the threshold most lenders use to approve your loan.

If you plan to move within five to seven years, a lower down payment may not make sense because you'll pay mortgage insurance for years and then sell before you reach 20% equity. In that case, saving for a larger down payment or waiting to buy might be smarter.

Frequently Asked Questions

Can I borrow my down payment from someone?

Most lenders don't allow borrowed down payments because they want to see that you have skin in the game—your own money at risk. Family gifts are allowed if documented, but loans from family members usually disqualify you. Loans from friends or credit cards almost always do. Ask your lender before you borrow from anyone.

What if I don't have enough for a down payment?

Look into FHA loans (3.5% down), VA or USDA loans (0% down if may be able to access), and down payment assistance programs in your state or county. Some nonprofits also offer down payment help. If none of those work, saving for another 6 to 12 months while you build credit and gather funds is often better than stretching into a loan you can't afford.

Does a larger down payment always mean a better interest rate?

Usually, yes—lenders offer lower rates to borrowers with 20% or more down because the risk is lower. But your credit score, income, and debt-to-income ratio matter just as much. A 10% down payment with excellent credit might get you a better rate than a 15% down payment with fair credit. Compare offers from multiple lenders to see the real difference.

Can I remove PMI before I reach 20% equity?

No, you can't remove PMI before 20% equity, but you can request removal once you reach it. Some lenders require a new appraisal to confirm the home's value. FHA mortgage insurance can't be removed early if you put down less than 10%, so it stays for the life of the loan.

Should I use my retirement savings for a down payment?

Withdrawing from a 401(k) or IRA has tax consequences and may reduce your retirement security. A traditional IRA withdrawal is penalty-free for first-time buyers up to $10,000, but you'll owe income tax on it. A 401(k) withdrawal is more restrictive. Explore down payment assistance and family gifts first before tapping retirement funds.