What counts as a minimum down payment

The minimum down payment on a house is not a single number — it depends on the type of loan you use. Conventional loans typically require 3% to 5% down. Federal Housing Administration (FHA) loans allow 3.5% down. VA loans (for military members and veterans) and USDA loans (for rural properties) often require 0% down. Some first-time buyer programs go as low as 2% or 3%, though these vary by state and lender.

The percentage is calculated on the purchase price. On a $300,000 house, 3% means $9,000 down; 5% means $15,000. The lower your down payment, the larger your monthly mortgage payment and the more interest you pay over the life of the loan — because you are borrowing more money.

Lenders also look at your credit score, income, and debt-to-income ratio. A lower down payment often means stricter requirements in these areas, and you may pay a higher interest rate or be required to carry mortgage insurance.

Key Takeaways

  • Conventional loans typically require 3% to 5% down, while FHA loans allow 3.5% down and VA or USDA loans may require nothing.
  • Your down payment is a percentage of the purchase price, so the actual dollar amount depends on the house cost.
  • A lower down payment means a higher monthly payment and more total interest paid, plus you may be required to carry mortgage insurance.
  • Lenders set minimum down payments based on loan type, but they also review your credit, income, and existing debt before approving you.
  • Down payment assistance programs exist in many states and counties, though they have income limits and other restrictions.

How down payment requirements change by loan type

Conventional loans are issued by private lenders and not backed by a government agency. Most conventional loans require 3% to 20% down. The 3% minimum is common for first-time buyers or borrowers with good credit; 5% to 10% is more typical for repeat buyers. If you put down less than 20%, you must pay private mortgage insurance (PMI), which protects the lender if you stop paying. PMI typically costs 0.5% to 1% of your loan amount per year, added to your monthly payment.

FHA loans are backed by the Federal Housing Administration and designed for borrowers who cannot save a large down payment or have lower credit scores. The minimum down payment is 3.5%. You must pay mortgage insurance with an FHA loan regardless of how much you put down — an upfront premium (usually 1.75% of the loan amount) and an annual premium (0.55% to 0.8% per year). FHA loans allow credit scores as low as 580, though some lenders require 640 or higher.

VA loans are for active-duty military, veterans, and surviving spouses. They typically require 0% down and no mortgage insurance. You do pay a one-time VA funding fee (1.4% to 3.6% of the loan amount, depending on whether you have used a VA loan before and your down payment). VA loans have no income ceiling and no maximum loan amount in most cases.

USDA loans are for rural properties and borrowers with moderate to low income. They require 0% down and no mortgage insurance. You pay a may provide fee (1% upfront, 0.35% annually). USDA loans have income limits that vary by county and family size.

What happens when you put down less than 20%

If you borrow more than 80% of the home's value, lenders require mortgage insurance to protect themselves. On a conventional loan, this is PMI. On an FHA loan, it is called mortgage insurance premium (MIP). On a VA or USDA loan, it is a funding fee or may provide fee.

Mortgage insurance is not optional — it is a cost you must pay as long as you carry it. On a conventional loan with PMI, you can stop paying once you reach 20% equity in the home (either by paying down the principal or by the home appreciating). On an FHA loan, mortgage insurance is permanent if you put down less than 10%; if you put down 10% or more, you can remove it after 11 years of payments.

The monthly cost varies. On a $300,000 conventional loan with 5% down ($15,000), PMI might add $150 to $300 per month. Over five years, that is $9,000 to $18,000 in insurance alone — money that does not build equity in the home.

Down payment assistance and where to find it

Many states, counties, and nonprofits offer down payment assistance programs. These may be grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set period), or second mortgages (loans you repay separately from your primary mortgage).

Common sources include your state housing finance agency, local housing authorities, and nonprofits like NeighborWorks America. Some employers and unions also offer down payment help. Income limits vary widely — some programs serve households up to 80% of area median income, others up to 120%. Most require you to complete a homebuyer education course.

To find programs in your area, start with your state's housing finance agency website or call 211 (a referral service). Ask whether the program covers your purchase price, whether it works with the loan type you are using, and what the income and credit requirements are. Processing times vary from two weeks to two months.

How much to save before you start house hunting

Your down payment is only one cost. You also need to cover closing costs (typically 2% to 5% of the purchase price), which include appraisal fees, title insurance, attorney fees, and lender fees. On a $300,000 house, closing costs might run $6,000 to $15,000.

If you are putting down 3% to 5%, plan to save that amount plus closing costs. Some lenders allow you to roll closing costs into the loan, but this increases your monthly payment and total interest. Some sellers will cover part or all of closing costs as part of the purchase negotiation, though this is less common in competitive markets.

You should also have an emergency fund separate from your down payment — ideally three to six months of expenses. Homeownership brings unexpected costs: a roof repair, a furnace replacement, or a plumbing emergency. If you spend every dollar you have on the down payment, you will be vulnerable to debt if something breaks.

Why lenders care about your down payment size

A larger down payment signals to the lender that you have savings discipline and skin in the game. If you default on the loan, the lender loses money — but if you have put 20% down, you have more to lose than they do, so you are more likely to keep paying.

A smaller down payment means the lender bears more risk. To offset that risk, they charge a higher interest rate, require mortgage insurance, or both. They also scrutinize your credit score and debt-to-income ratio more closely. A borrower with a 750 credit score and a 3% down payment may get approved; a borrower with a 620 score and the same 3% down might be denied or offered a much higher rate.

Down payment size also affects your negotiating power. In a competitive market, an offer with a larger down payment and a shorter inspection period is more attractive to a seller than an offer with a smaller down payment and contingencies.

Frequently Asked Questions

Can I borrow my down payment from family or friends?

Lenders allow down payment gifts from family members, but not loans. If a relative gives you money as a gift, you must provide a signed gift letter stating it does not need to be repaid. If you borrow the money, you must disclose the debt, and it counts against your debt-to-income ratio, which may reduce how much you can borrow overall.

What if I have only 1% or 2% saved?

You have three options: wait and save more, look for a down payment assistance program in your area, or explore first-time buyer programs that may accept 2% down (though these are less common). Some credit unions and community banks offer lower minimums than national lenders. You can also ask the seller to cover closing costs, which frees up more of your savings for the down payment.

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

Usually, yes — a 20% down payment typically qualifies for a lower rate than a 3% down payment. However, your credit score, income, and the current market matter too. A borrower with excellent credit and 5% down might get a better rate than a borrower with fair credit and 15% down. Always compare offers from multiple lenders.

Can I use a 401(k) or IRA withdrawal for a down payment?

You can withdraw from a traditional IRA penalty-free up to $10,000 in your lifetime for a first-time home purchase. A 401(k) withdrawal is more complicated and usually requires a loan from your plan rather than a withdrawal. Both options have tax consequences and reduce your retirement savings, so consult a tax professional before doing this.

What if the appraisal comes in lower than the purchase price?

If the home appraises for less than you agreed to pay, your down payment percentage increases automatically. On a $300,000 purchase with a $15,000 down payment (5%), if the appraisal is $280,000, your down payment is now 5.4% of the appraised value. You may need to renegotiate the price, increase your down payment, or walk away depending on your contract terms.