A conventional loan typically requires a down payment between 3 and 20 percent of the home's purchase price, though the exact amount depends on your credit score, debt-to-income ratio, and the lender you choose.

A conventional loan is a mortgage that is not backed by a government agency like the FHA or VA. Because the lender bears the full risk if you stop paying, they set their own rules about how much cash you must put down upfront. The minimum is usually 3 percent for borrowers with good credit and stable income, but many lenders require 5, 10, or even 20 percent depending on how risky they think you are.

The down payment you actually pay is negotiated between you and your lender at the time you apply. It is not set by law or by a single national standard. Two borrowers buying the same house can end up with different down payment requirements if one has a 750 credit score and the other has a 620.

Key Takeaways

  • Conventional loans require down payments ranging from 3 to 20 percent, with 20 percent being the threshold where you avoid mortgage insurance altogether.
  • A lower credit score or higher debt-to-income ratio will push your required down payment higher, even if you are buying the same property as someone else.
  • If you put down less than 20 percent, you will pay private mortgage insurance (PMI) monthly until you reach 20 percent equity in the home.
  • The down payment is separate from closing costs, which typically run 2 to 5 percent of the purchase price and are due at signing.

How lenders decide your down payment requirement

Lenders use three main factors to set your down payment: your credit score, your debt-to-income ratio, and the loan-to-value ratio of the property. A credit score above 740 and a debt-to-income ratio below 43 percent will usually get you the lowest down payment option the lender offers. If either number is weaker, the lender will ask for more cash down to reduce their risk.

The loan-to-value ratio (LTV) is the size of the loan divided by the home's value. If you are buying a $300,000 house and putting down $60,000, your LTV is 80 percent (a $240,000 loan on a $300,000 property). Lenders prefer LTVs of 80 percent or lower, which means a 20 percent down payment. At higher LTVs—say 95 percent for a 5 percent down payment—the lender requires mortgage insurance to cover their loss if you default.

Some lenders also look at the type of property and your employment history. A single-family home you will occupy is lower risk than an investment property or a condo in a building with many rentals. A job you have held for two years is lower risk than a job you started last month.

The difference between 3 percent and 20 percent down

Putting down 3 percent means you borrow 97 percent of the purchase price. On a $300,000 home, that is $9,000 down and a $291,000 loan. The advantage is obvious: you need less cash upfront. The disadvantage is that you will pay private mortgage insurance (PMI) every month until you reach 20 percent equity.

PMI typically costs 0.5 to 1.5 percent of the loan amount per year, paid as part of your monthly mortgage payment. On a $291,000 loan, that could be $145 to $436 per month. Over five years, PMI can add $8,700 to $26,160 to the cost of the loan. You can remove PMI once you reach 20 percent equity through a combination of payments and home appreciation, but this usually takes five to ten years.

Putting down 20 percent means you borrow 80 percent of the purchase price. On the same $300,000 home, that is $60,000 down and a $240,000 loan. You avoid PMI entirely, which saves you thousands over the life of the loan. The trade-off is that you need $51,000 more in cash at closing (the difference between $9,000 and $60,000).

A middle ground is 10 or 15 percent down. This reduces the amount of cash you need upfront compared to 20 percent, while keeping PMI costs lower than a 3 percent down payment would.

Down payment versus closing costs

The down payment and closing costs are two separate amounts due at closing, and many borrowers confuse them. The down payment is your equity stake in the home—the portion of the purchase price you own outright from day one. Closing costs are fees paid to the lender, title company, appraiser, inspector, and other parties involved in the transaction.

Closing costs typically range from 2 to 5 percent of the purchase price. On a $300,000 home, that is $6,000 to $15,000. Common closing costs include the loan origination fee, appraisal fee, title insurance, property survey, homeowners insurance, property taxes, and attorney fees. Some of these are negotiable; others are set by law or by the title company.

If you are putting down 3 percent ($9,000) on a $300,000 home and closing costs are $10,000, you need $19,000 in cash at closing, not $9,000. Some lenders allow you to roll closing costs into the loan, which means you borrow the money instead of paying it upfront, but this increases your loan amount and your monthly payment.

When a larger down payment makes financial sense

A larger down payment is worth the extra cash if you have it and will not need that money for emergencies or other goals. Putting down 20 percent instead of 3 percent saves you PMI, which is pure cost with no benefit to you. Over a 30-year loan, this can save $50,000 to $100,000 depending on the loan size and interest rates.

However, a larger down payment is not always the best use of your money. If you have high-interest debt like credit cards, paying that down first usually makes more financial sense than putting extra money into a down payment. If you have little emergency savings, keeping cash liquid is safer than locking it into a home purchase. Interest rates on mortgages are also historically low, so borrowing at 6 or 7 percent to avoid paying 8 or 9 percent on credit card debt is a reasonable trade-off.

Some borrowers also use a smaller down payment to preserve cash for renovations, repairs, or other costs that come up after closing. A house inspection might reveal a roof that needs replacing in two years, or a foundation issue that will cost $15,000 to fix. Having cash on hand for these surprises is often more valuable than having a smaller monthly payment.

How to save for a down payment

If you are saving for a down payment, the amount you need depends on the price of the home you want to buy and the down payment percentage your lender will accept. A 3 percent down payment on a $250,000 home is $7,500. A 10 percent down payment on the same home is $25,000. A 20 percent down payment is $50,000.

The fastest way to save is to set aside a fixed amount each month in a separate savings account and do not touch it. If you need $25,000 in two years, that is about $1,040 per month. If you have a longer timeline, the monthly amount is smaller. Some employers offer down payment assistance programs or matching contributions, so check with your HR department.

Some states and cities also run down payment assistance programs that provide grants or low-interest loans to first-time homebuyers. These are separate from the mortgage itself and can reduce the amount of cash you need to bring to closing. Your lender or a local housing counselor can tell you whether you are in an area with these programs.

Frequently Asked Questions

Can I put down less than 3 percent on a conventional loan?

Most conventional lenders do not offer down payments below 3 percent. Some credit unions and portfolio lenders (lenders who keep loans on their own books rather than selling them) may go lower, but these are rare and usually require excellent credit and a strong income. FHA loans allow down payments as low as 3.5 percent and are easier to get with lower credit scores.

What happens if I put down 5 percent instead of 3 percent?

Your monthly PMI payment will be lower because your loan-to-value ratio is 95 percent instead of 97 percent. You will also reach 20 percent equity faster, so you can remove PMI sooner. The trade-off is that you need $6,000 more in cash at closing on a $300,000 home (the difference between $9,000 and $15,000).

Can I use a gift for my down payment?

Yes, most conventional lenders allow down payment gifts from family members. You will need a signed gift letter stating that the money is a gift and not a loan you have to repay. The lender may also ask for proof that the gift giver has the funds and that the money has been transferred to your account.

Does a larger down payment lower my interest rate?

Not directly. Your interest rate is set based on your credit score, debt-to-income ratio, the loan term, and current market rates. A larger down payment reduces your LTV, which lowers your risk to the lender and may may have access to you for a slightly better rate, but the difference is usually small—often a quarter percent or less.

What if I cannot save 20 percent down?

You can still buy a home with 3, 5, or 10 percent down. You will pay PMI, which adds to your monthly payment, but PMI can be removed once you reach 20 percent equity. Many first-time buyers use this route because it lets them buy sooner rather than waiting years to save 20 percent.