You may need anywhere from 0% to 20% or more as a home down payment. Eligible VA and USDA borrowers may qualify with no down payment, FHA loans can require as little as 3.5%, and some conventional programs allow 3% down. A 20% down payment is common advice, but it is not a universal requirement.
The best down payment is not automatically the largest amount you can scrape together.
It should reduce your mortgage without leaving you unable to cover closing costs, moving expenses, repairs, and an emergency. Putting $80,000 down on a $400,000 home may avoid conventional mortgage insurance, but it can be a bad trade when you have only $82,000 in total savings.
The down payment gets you into the home.
The money left afterward helps you stay there.
What is a home down payment?
A down payment is the portion of the home’s purchase price that you pay without using the main mortgage.
The basic calculation is:
Home price × down payment percentage = down payment
Suppose the home costs $400,000.
| Down payment percentage | Cash down payment | Mortgage before other financed costs |
|---|---|---|
| 0% | $0 | $400,000 |
| 3% | $12,000 | $388,000 |
| 3.5% | $14,000 | $386,000 |
| 5% | $20,000 | $380,000 |
| 10% | $40,000 | $360,000 |
| 20% | $80,000 | $320,000 |
Your actual mortgage may differ from the simple home price minus down payment calculation. Certain program fees, financed closing costs, or secondary financing can change the final loan amount.
The Loan Estimate shows the proposed loan amount, estimated closing costs, and estimated cash to close. Use that form rather than relying on the number you calculated when you first saw the listing.
You do not always need 20% down
The 20% figure has become one of those money rules that sounds like law after being repeated enough times.
It is not law.
A 20% down payment can be useful because it lowers the mortgage and can avoid private mortgage insurance on a conventional loan. But low-down-payment and no-down-payment mortgage programs exist for eligible borrowers. CFPB guidance says most buyers need at least 3% for common mortgage options, while special programs may permit less or nothing down.
What 20% can do for you
Putting 20% down may:
- Reduce the amount borrowed
- Lower the monthly principal and interest payment
- Reduce total interest when the rate and term stay the same
- Avoid conventional private mortgage insurance
- Give you more starting equity
- Reduce the risk of owing more than the home is worth after a price decline
- Improve the loan terms available in some situations
Those are real benefits.
They do not make 20% worth sacrificing every dollar of emergency savings.
What 20% cannot do
A larger down payment does not:
- Pay your closing costs automatically
- Cover future repairs
- Prevent property taxes or insurance from increasing
- Guarantee the home will rise in value
- Make an excessive monthly payment affordable
- Replace a household emergency fund
You can own 20% of the home on closing day and still be one broken air conditioner away from credit card debt.
Minimum down payments depend on the mortgage
The amount you need is partly determined by the loan program, but the published minimum is only a starting point.
A lender may require more based on the property, loan amount, underwriting result, credit profile, or other parts of the transaction.
Conventional loans may allow 3% down
Some eligible conventional mortgages provide financing up to 97% of the home’s value, which means a 3% down payment. Fannie Mae and Freddie Mac offer several 3% down programs, although first-time buyer, income, occupancy, education, and underwriting conditions can apply.
Conventional does not mean 20% down.
It means the loan is not insured or guaranteed through a federal mortgage program such as FHA, VA, or USDA.
When you put less than 20% down on a conventional mortgage, the lender will commonly require private mortgage insurance. The premium depends on the loan and borrower, so a 3% conventional offer may look very different for two applicants.
FHA loans may allow 3.5% down
FHA-insured purchase loans can permit a down payment as low as 3.5% for eligible borrowers. FHA financing also includes mortgage insurance, so the small down payment should be compared with both the upfront and ongoing mortgage-insurance costs.
On a $400,000 home, 3.5% is:
$400,000 × 3.5% = $14,000
That is much easier to save than $80,000.
The catch is that the mortgage starts larger and FHA insurance can add to both the upfront loan amount and monthly cost.
VA loans may require no down payment
Eligible veterans, service members, and certain surviving spouses may qualify for a VA-backed purchase loan with no down payment when the sales price is not higher than the appraised value. VA-backed loans also do not require monthly PMI or FHA-style MIP. The borrower must still meet VA and lender requirements.
A one-time VA funding fee may apply unless the borrower is exempt. It can generally be paid at closing or included in the loan amount. Closing costs and lender charges also remain part of the transaction.
No down payment does not mean no money is needed.
USDA loans may provide 100% financing
The USDA Single Family Housing Guaranteed Loan Program can offer 100% financing to qualified low- and moderate-income borrowers purchasing eligible primary residences in eligible rural areas. Income, occupancy, citizenship, property-location, and lender requirements apply.
A suburb or small community may qualify even when it does not look rural in the everyday sense of the word.
Check the address and household eligibility rather than assuming.
Special local programs may reduce what you need
State housing finance agencies, local governments, employers, and nonprofit organizations may offer down payment or closing-cost help.
The assistance might be:
- A grant
- A forgivable loan
- A deferred-payment second mortgage
- A regular second mortgage
- A lender credit
- Matched savings
Some Fannie Mae and Freddie Mac programs permit eligible down payment assistance from third-party sources. The exact assistance terms, income limits, homebuyer education requirements, repayment rules, and occupancy period can vary.
“Assistance” does not always mean free money.
Read what happens when you sell, refinance, move out, or repay the first mortgage.
How the down payment changes your monthly payment
A larger down payment reduces the principal borrowed.
Here is an example using:
- Home price: $400,000
- Hypothetical fixed interest rate: 6.5%
- Mortgage term: 30 years
- No financed fees
The 6.5% rate is used only to show the math. It is not a current market quote.
| Down payment | Loan amount | Estimated principal and interest | Estimated interest over 30 years |
|---|---|---|---|
| 3%, or $12,000 | $388,000 | $2,452.42 | $494,872.62 |
| 3.5%, or $14,000 | $386,000 | $2,439.78 | $492,321.73 |
| 5%, or $20,000 | $380,000 | $2,401.86 | $484,669.06 |
| 10%, or $40,000 | $360,000 | $2,275.44 | $459,160.16 |
| 20%, or $80,000 | $320,000 | $2,022.62 | $408,142.36 |
These figures exclude property taxes, homeowners insurance, mortgage insurance, association fees, and maintenance.
Those costs do not care how attractive the principal and interest payment looks.
Comparing 5% and 20% down
The additional down payment is:
$80,000 − $20,000 = $60,000
The estimated monthly principal and interest reduction is:
$2,401.86 − $2,022.62 = $379.24
Estimated interest saved over the full 30-year schedule:
$484,669.06 − $408,142.36 = $76,526.70
The 20% option also avoids conventional PMI in a typical conventional comparison.
That is a meaningful saving.
But the buyer needs another $60,000 at closing. When reaching 20% leaves the household with no repair reserve or emergency cash, the larger down payment may make the mortgage safer while making the household less safe.
Mortgage insurance changes the comparison
Mortgage insurance protects the lender against certain losses when a borrower defaults. It does not make your mortgage payment for you after a job loss.
With many conventional mortgages, putting down less than 20% means paying PMI. FHA loans use their own mortgage-insurance system, while qualifying VA-backed loans do not require monthly PMI or MIP.
A hypothetical PMI example
Suppose the $380,000 conventional mortgage with 5% down has a hypothetical annual PMI rate of 0.60%.
Initial annual PMI estimate:
$380,000 × 0.60% = $2,280
Initial monthly estimate:
$2,280 ÷ 12 = $190
Principal, interest, and hypothetical PMI:
$2,401.86 + $190 = $2,591.86
The actual PMI rate could be lower or higher. It may depend on credit, loan-to-value ratio, loan type, insurer, and other factors.
Request a written quote.
Conventional PMI may be removable
For many eligible principal-residence mortgages, you can request PMI cancellation when the scheduled principal reaches 80% of the home’s original value, provided you meet the legal and servicing conditions. Those conditions can include a written request, current payments, a good payment history, no disqualifying junior liens, and evidence that the home has not fallen in value.
Using the hypothetical $380,000 mortgage above, 80% of the original $400,000 value is:
$400,000 × 80% = $320,000
With scheduled payments at 6.5%, the balance would fall below $320,000 after approximately 124 payments, or about 10 years and four months.
Extra principal payments may reach that point sooner, but the servicer’s cancellation rules still apply.
Down payment and cash to close are not the same
Your down payment is only one part of the money needed to finish the purchase.
Estimated cash to close can include the down payment and closing costs, reduced by credits, deposits already paid, and other adjustments. The Loan Estimate shows how the lender calculated it.
Closing costs are separate
CFPB guidance says closing costs commonly range from about 2% to 5% of the purchase price, excluding the down payment. Your actual amount depends on the home, lender, loan, location, and services used.
On a $400,000 home:
| Closing-cost estimate | Dollar amount |
|---|---|
| 2% | $8,000 |
| 3% | $12,000 |
| 5% | $20,000 |
Suppose you plan to put 5% down and estimate closing costs at 3%.
Down payment:
$400,000 × 5% = $20,000
Estimated closing costs:
$400,000 × 3% = $12,000
Estimated total for those two items:
$20,000 + $12,000 = $32,000
A buyer with $20,000 saved does not yet have enough for this example.
Closing costs can include more than lender fees
Possible closing costs and prepaid items include:
- Loan origination charges
- Appraisal fees
- Credit report charges
- Title services and title insurance
- Recording charges
- Prepaid interest
- Initial property-tax deposits
- Initial homeowners-insurance costs
The exact charges appear on the Loan Estimate and later on the Closing Disclosure.
Do not use a rough 3% estimate as though it were the final bill.
Keep money for life after closing
The CFPB recommends subtracting moving costs, renovations, other savings goals, and an emergency cushion before deciding how much cash is available for a down payment. Its current planning guidance uses three to six months of expenses as a general emergency-cushion benchmark.
Your appropriate amount depends on job stability, household income, dependents, insurance deductibles, and the property’s condition.
A complete savings example
Suppose you have $70,000 in available savings and are considering a $400,000 home.
| Cash need | Amount |
|---|---|
| Estimated closing costs | $12,000 |
| Moving and immediate setup | $4,000 |
| Initial repairs and furnishings | $5,000 |
| Emergency savings retained | $20,000 |
Cash remaining for the down payment:
$70,000 − $12,000 − $4,000 − $5,000 − $20,000 = $29,000
Down payment percentage:
$29,000 ÷ $400,000 × 100 = 7.25%
The buyer cannot safely put 15% down merely because $60,000 is sitting in the bank today.
Most of that money already has another job.
A repair reserve matters
A home inspection can identify visible issues, but it cannot promise that nothing will fail after closing.
Possible early expenses include:
- Plumbing repairs
- Heating or cooling service
- Appliance replacement
- Electrical work
- Roof repairs
- Insurance deductibles
- Locks, blinds, tools, and basic setup
Using every dollar for the down payment can turn those costs into high-interest card debt.
That is not a victory over mortgage insurance.
It is moving the insurance saving onto a credit card.
A larger down payment creates more equity
Equity is the home’s value minus the debt secured against it.
Suppose you buy a $400,000 home and it remains worth $400,000 immediately after closing.
- With 5% down, starting equity is approximately $20,000 before transaction costs.
- With 20% down, starting equity is approximately $80,000.
A larger equity cushion can make it easier to absorb a decline in value without becoming underwater.
A home-price decline example
Suppose the home falls from $400,000 to $360,000.
That is a 10% decline.
With 5% down and an initial $380,000 loan, the mortgage balance would exceed the new value before considering any principal already repaid.
Approximate negative equity at the start:
$380,000 − $360,000 = $20,000
With 20% down and a $320,000 loan:
$360,000 − $320,000 = $40,000 of remaining equity
Home prices can rise, fall, or remain flat.
Do not choose the smallest possible down payment on the assumption that appreciation will repair the equity quickly.
Do not forget the opportunity cost of a large down payment
Money placed into the home becomes home equity.
It is not as easy to access as cash in a savings account. The CFPB warns buyers to consider that down-payment money will no longer be available for other goals or large expenses. Borrowing against home equity later requires approval and creates another debt.
Suppose you are choosing between:
- Putting $80,000 down
- Putting $40,000 down and keeping $40,000 in savings
The first choice lowers the mortgage and interest.
The second provides more cash for repairs, income disruption, education, or another planned goal.
There is no universal answer.
I would be cautious about placing the final available dollar into the home merely to reach a round percentage.
Can gift money be used for a down payment?
Some mortgage programs allow eligible gift funds from family members or other permitted donors. The lender will usually need to document where the money came from and confirm that it is a genuine gift rather than a hidden loan.
Possible documentation may include:
- A signed gift letter
- Evidence of the donor’s transfer
- Evidence that the funds reached your account or the closing agent
- Confirmation of the relationship where required
Do not deposit a large unexplained amount and wait for the underwriter to ask about it two days before closing.
Tell the loan officer about the gift early.
Should you borrow the down payment?
Borrowing a down payment can create another required monthly payment and increase the debt considered during mortgage underwriting. CFPB guidance warns that borrowing the money increases both overall debt and monthly obligations.
Possible sources might include:
- A personal loan
- A second mortgage
- A down payment assistance loan
- An employer loan
- A loan against another asset
The existence of a loan does not automatically make the arrangement bad.
The payment needs to fit.
A second-loan example
Suppose you use a $20,000 assistance loan requiring $150 per month.
Your new housing obligations include:
- The first mortgage payment
- The $150 second-loan payment
- Property taxes
- Homeowners insurance
- Mortgage insurance
- Association fees, when applicable
A program advertised as “help with your down payment” may reduce the cash needed today while adding another payment tomorrow.
Earnest money is not usually an extra down payment
Earnest money is a deposit paid after signing a purchase agreement to show that you are serious about buying the home.
When the purchase closes, the deposit may be credited toward your down payment or closing costs. Its treatment should appear in the cash-to-close calculation.
An earnest-money example
Suppose you plan:
- $20,000 down payment
- $12,000 closing costs
- $5,000 earnest-money deposit already paid
Simplified remaining cash:
$20,000 + $12,000 − $5,000 = $27,000
Other credits and adjustments may change the figure.
Check the Loan Estimate and Closing Disclosure.
A low appraisal can increase the cash you need
A mortgage lender generally bases its collateral decision on the property’s appraised value, not merely the amount you agreed to pay.
Suppose:
- Purchase price: $400,000
- Appraised value: $380,000
- Planned loan-to-value ratio: 95%
Maximum simplified loan based on the appraisal:
$380,000 × 95% = $361,000
Cash needed to complete a $400,000 purchase before closing costs:
$400,000 − $361,000 = $39,000
You expected a 5% down payment of $20,000.
The low appraisal creates another $19,000 gap:
$39,000 − $20,000 = $19,000
Possible responses include negotiating a lower price, disputing factual appraisal errors through the proper process, increasing the cash contribution, changing the loan, or leaving the transaction when the contract permits it. The CFPB warns that paying more than the appraised value can be risky and says the lower appraisal can support a request for a price reduction.
When a small down payment may make sense
A low down payment may be reasonable when:
- The complete mortgage payment fits comfortably.
- You retain a healthy emergency fund.
- You have stable income.
- You qualify for a competitive mortgage.
- Waiting would create another meaningful cost.
- You understand the mortgage-insurance expense.
- You plan to stay long enough for ownership to suit your goals.
For example, putting 5% down while retaining $30,000 for emergencies may be safer than putting 10% down and keeping $2,000.
The smaller down payment costs more each month.
The larger cash reserve can stop the next repair from becoming expensive revolving debt.
When 10% down may be a useful middle ground
Ten percent can produce a noticeable reduction in the loan without requiring the full 20%.
On a $400,000 home:
- 5% down: $20,000
- 10% down: $40,000
- 20% down: $80,000
Compared with 5%, the 10% option requires another $20,000 rather than another $60,000.
Using the hypothetical 6.5% mortgage:
$2,401.86 − $2,275.44 = $126.42 less principal and interest per month
It may also produce a different rate or mortgage-insurance quote.
Ask the lender to show the 5%, 10%, and 20% versions side by side. Down payment levels can affect pricing in steps, so an 8% down payment may not receive the same treatment as 10%. CFPB guidance specifically recommends checking the differences at common percentage levels rather than assuming every extra dollar creates an equal pricing benefit.
When 20% down may be worth waiting for
Waiting may make sense when:
- You are close to reaching 20%.
- You can save the remaining amount within a reasonable period.
- Renting a little longer fits your plans.
- You will still have closing and emergency cash.
- A 20% down conventional quote removes expensive PMI.
- The smaller loan brings the payment into a comfortable range.
Suppose you have $72,000 available for a down payment on a $400,000 home.
You are $8,000 short of 20%:
$80,000 − $72,000 = $8,000
Saving another $1,000 per month would take eight months.
Waiting might be sensible when it avoids PMI and lowers the mortgage without disrupting your life.
But remember that home prices, interest rates, rent, and your circumstances can change while you save. Do not assume waiting will definitely make the total purchase cheaper.
When more than 20% down may make sense
A down payment above 20% may appeal when:
- You want a smaller required payment.
- You prefer less debt.
- You have substantial cash beyond the purchase.
- The money is not needed for higher-priority goals.
- The larger payment produces better loan terms.
- You are buying near retirement and want lower fixed expenses.
The benefit becomes smaller with each extra dollar because you have already avoided conventional PMI at 20%.
You still reduce interest and payment, but ask whether the cash would serve you better elsewhere.
How to choose your down payment step by step
Step 1: Add up available cash
Include eligible savings, planned sale proceeds, documented gifts, and approved assistance.
Do not count an annual bonus that has not arrived.
Step 2: Protect emergency savings
Choose an amount you will keep after closing.
Base it on household expenses, job security, dependents, deductibles, and the property.
Step 3: Estimate closing costs
Use 2% to 5% for early planning, then replace the rough estimate with Loan Estimate figures.
Step 4: Set aside moving and repair cash
Include inspections, movers, utility setup, immediate work, and basic furnishings.
Step 5: Calculate the remaining amount
The money left is your maximum possible down payment.
It is not necessarily the amount you should use.
Step 6: Ask lenders for several versions
Request quotes at:
- The minimum available down payment
- 5%
- 10%
- 20%
Some levels may not apply to your loan or available cash.
Step 7: Compare the complete offers
Check:
- Loan amount
- Interest rate
- APR
- Principal and interest
- Mortgage insurance
- Points and fees
- Estimated cash to close
- Five-year cost
Step 8: Stress-test the choice
Ask what happens if:
- Insurance rises.
- Property taxes increase.
- The home needs a $5,000 repair.
- One income disappears for two months.
- You cannot refinance.
The best down payment survives a normal amount of bad luck.
Common down payment mistakes
Believing 20% is always required
Eligible conventional, FHA, VA, USDA, and local programs may require less.
Saving only the down payment
Closing costs, moving, repairs, and emergency savings need separate money.
Using every dollar at closing
A large down payment does not protect you from a broken furnace or lost income.
Comparing percentages without comparing loans
A 3% conventional loan, 3.5% FHA loan, and no-down-payment VA loan use different insurance, fee, and eligibility systems.
Assuming assistance is a grant
It may be a second mortgage with repayment or occupancy conditions.
Hiding a borrowed down payment
The lender needs accurate information about the source and any repayment obligation.
Forgetting the appraisal
A low value can increase the cash required or threaten the transaction.
Planning to refinance immediately
Future approval, rates, value, equity, and closing costs are unknown.
Frequently asked questions
How much down payment do I need for a home?
It depends on the mortgage. Some eligible borrowers can use 0% down, some conventional programs allow 3%, and FHA may allow 3.5%. Many other loans require 5% or more.
Do first-time homebuyers need 20% down?
No. First-time buyers may qualify for conventional 3% programs, FHA financing, VA or USDA loans when eligible, and local assistance. Program conditions apply.
How much is 5% down on a $400,000 home?
Five percent is $20,000:
$400,000 × 5% = $20,000
How much is 20% down on a $400,000 home?
Twenty percent is $80,000:
$400,000 × 20% = $80,000
Does a larger down payment lower the mortgage payment?
Yes. It lowers the amount borrowed. It may also change your rate, loan costs, or mortgage-insurance premium.
Can I buy a home with no down payment?
Eligible VA and USDA borrowers may qualify for no-down-payment financing. Eligibility, appraisal, property, income, credit, occupancy, lender, funding-fee, and closing-cost requirements can still apply.
What is the minimum FHA down payment?
FHA loans can permit as little as 3.5% down for eligible borrowers. FHA mortgage insurance adds to the cost.
Can a conventional loan require only 3% down?
Yes. Fannie Mae and Freddie Mac offer eligible conventional programs with 97% financing. First-time buyer, income, education, occupancy, and underwriting rules may apply.
Will I pay mortgage insurance with less than 20% down?
You will likely pay mortgage insurance on a conventional loan, although the exact requirement depends on the mortgage. FHA uses its own mortgage-insurance system, and qualifying VA-backed loans do not require monthly PMI or MIP.
Can conventional PMI be removed?
For many eligible mortgages, you can request cancellation when the scheduled balance reaches 80% of the home’s original value and required conditions are met. Different rules apply to FHA, VA, lender-paid insurance, and some other loans.
Are closing costs included in the down payment?
No. They are separate upfront costs, although credits and deposits can change your final cash to close. Closing costs commonly range from 2% to 5% for early planning.
Can a seller pay my down payment?
Seller contributions are generally handled under the selected loan’s rules and are often used toward eligible closing costs rather than replacing the borrower’s required investment. Ask the lender to show exactly how any seller credit affects cash to close.
Can my parents give me the down payment?
Many mortgage programs allow eligible gifts, but the lender needs documentation showing the source and confirming that the money is a gift rather than an undisclosed loan.
Can I use down payment assistance?
Possibly. Assistance may come from state or local agencies, housing finance authorities, nonprofits, or eligible mortgage programs. Check whether it is a grant, forgivable loan, deferred second mortgage, or regular loan.
Should I borrow my down payment?
Be careful. Borrowing increases your debt and may add another monthly obligation to the mortgage qualification and household budget.
Should I use all my savings for 20% down?
Usually not when that leaves no emergency, closing, moving, or repair money. Compare the PMI saving with the risk of having almost no cash after closing.
Does earnest money count toward my down payment?
When the purchase closes, the deposit may be credited toward the down payment or closing costs. Confirm its treatment on the Loan Estimate and Closing Disclosure.
What happens if the appraisal is below my offer?
The lender may base financing on the lower value, which can increase the cash needed. You may negotiate the price, review the appraisal for errors, change financing, add cash, or leave when your contract permits it.
Is it better to put 5%, 10%, or 20% down?
Five percent preserves more cash but creates a larger loan and likely mortgage insurance. Ten percent can be a useful middle ground. Twenty percent can avoid conventional PMI but requires much more money upfront. Compare written offers at each level.
Should I wait until I have a bigger down payment?
Waiting may help when you are close to a useful pricing level and can still keep emergency savings. Buying sooner may make sense when the current payment is affordable and the low-down-payment loan is competitive. There is no guaranteed cheapest choice because rates, prices, rent, and personal circumstances can change.
The bottom line
You may need 0%, 3%, 3.5%, 5%, 10%, 20%, or more for a home down payment. The required amount depends on the mortgage, property, lender, and your application.
Twenty percent can reduce interest, avoid conventional PMI, and create more equity. It is not worth reaching when doing so empties your savings.
Start with all available cash. Subtract closing costs, moving expenses, immediate repairs, and the emergency fund you plan to keep. Then ask lenders to compare several down payment levels using written Loan Estimates.
The goal is not to make the biggest possible payment on closing day.
It is to enter the home with a mortgage and cash reserve you can both afford.