A down payment is a standard requirement for most mortgage loans. The amount you’ll need depends on the type of loan you’re applying for, your financial situation and your goals. Ideally, you’ll want to put down as much as you can comfortably afford to increase your approval odds, possibly avoid mortgage insurance and have a more affordable monthly payment.
What is a down payment?
A down payment is an upfront partial payment toward the purchase of a home. It reduces the amount you’ll need to borrow, and is typically expressed as a percentage of the sales price of the home. For example, if a mortgage lender requires a 3 percent down payment on a $250,000 home, the homebuyer must pay at least $7,500 at closing.
If you can’t afford the down payment required by the lender from your savings alone, you might still have options. Many borrowers source down payment funds from the proceeds of selling their current home, or from gifts or grants from family, friends or special programs for homebuyers.
How much is a down payment on a house?
The amount you’ll be required to put down on a home depends on the type of loan you get and the mortgage lender’s requirements. Your income, cash on hand, credit score and debt-to-income (DTI) ratio can affect whether or not you qualify, and the terms of your loan.
In general, borrowing a conventional loan — one available through or guaranteed by a private lender or either of two government-sponsored entities, Fannie Mae or Freddie Mac — requires a down payment of 5 percent or higher. Some conventional loan programs allow for a down payment of just 3 percent, however, so this can be an option for first-time homebuyers and others who have less cash available.
That said, a down payment of 20 percent on a conventional loan means you’ll avoid having to pay for private mortgage insurance, or PMI, which can add significantly to your monthly mortgage payment. Depending on credit and down payment, PMI typically costs between 0.19 percent and 1.86 percent of your loan amount every year, according to the Urban Institute.
Twenty percent isn’t the magic number for every kind of mortgage. Other loans allow for much less down: FHA loans require as little as 3.5 percent, and VA loans and USDA loans have no down payment requirement at all.
Minimum down payment requirements
There are several considerations to make when answering how much is a down payment on a house, including the type of loan you’re applying for. Here’s a look at the minimum requirements of some common loans:
Conventional loan: 3 percent to 25 percent
Down payment requirements for a conventional loan can vary depending on the lender, the borrower and the type of property. For example, first-time homebuyers and buyers with low to moderate incomes could qualify for a conventional loan with a 3 percent down payment. For most others, though, the minimum starts at 5 percent for a primary residence.
If you’re buying a second home or an investment property with a conventional loan, the down payment requirement is usually higher. Second homes typically start at 10 percent, and investment properties can require as much as 25 percent. That said, the amount you need to put down can depend on your creditworthiness and financial situation, so consult with your loan officer to get a better idea of what requirements apply to you.
Keep in mind, too, that in order to avoid PMI, you’ll need to put down at least 20 percent. If you can’t afford that, though, you can have PMI removed later once you reach a loan-to-value (LTV) ratio of 80 percent.
Jumbo loan: 10 percent
Jumbo loans are a specific type of conventional loan that don’t conform to Fannie Mae and Freddie Mac standards for loan amounts. In 2022, that means any conventional loan not backed by a government agency that exceeds $647,200 — though high-cost areas have higher limits. Jumbo loans typically require 10 percent down or more.
FHA loan: 3.5 percent
For an FHA loan insured by the Federal Housing Administration, the minimum down payment is 3.5 percent, provided you have a credit score of at least 580. That means you’ll receive the maximum financing FHA insures at 96.5 percent. If you have a credit score between 500 and 579, you can still get approved, but you’ll need a 10 percent down payment.
Like conventional loans, FHA loans with less than 20 percent down require mortgage insurance. The difference, though, is that you have to pay an upfront mortgage insurance premium (MIP) when you close, which is 1.75 percent of the loan amount, and also an annual premium.
The amount you have to pay annually for insurance, and for how long, depends on your down payment amount, your repayment term and loan amount. For example, if you have a 30-year loan that’s less than or equal to $625,000, and your down payment is less than 5 percent, your annual mortgage insurance premium will be 0.85 percent of the loan amount, and you’ll owe it for the duration of the loan. However, if you put down more than 10 percent, your premium will be 0.80 percent of the loan amount, and you’ll only have to pay it for 11 years.
VA loan and USDA loan: Zero percent
The U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) guarantee zero-down payment loans for qualified homebuyers.
VA loans are available to most members of the armed forces and veterans and their families. USDA loans, on the other hand, are available to borrowers planning to purchase homes in designated rural areas. The USDA has maps on its website that show which areas are eligible.
Neither loan program requires mortgage insurance. With VA loans, you’ll pay a one-time funding fee, which ranges from 1.4 percent to 3.6 percent depending on how many VA loans you’ve had and your down payment amount. With USDA loans, you’ll pay an upfront and annual guarantee fee, both of which are independent of your down payment amount.
How much should you put down on a house?
How much you should put down on a house is a personal decision that mainly depends on your finances and what loan program you use.
For example, if you can afford a large down payment, putting it all down can reduce your monthly payment and possibly even lower the interest rate and save you from having to pay PMI. If you want to keep some money for emergencies or other purposes, it might not make sense to put more down than is necessary to get approved, even if that means a slightly higher interest rate and a larger monthly payment.
Some programs don’t require a down payment at all, but if you finance 100 percent of the sales price of the home and your home loses value, you could end up owing more than it’s worth — this is called being upside down or underwater on your mortgage. Talk to your loan officer about how much you’re required to put down, and carefully consider the right down payment amount for you.
With your down payment savings, you’ll also need to account for closing costs, which can range from 2 percent to 6 percent of the loan amount. While it is possible with some home loans to roll the closing costs into the loan, it’s best to pay them upfront if you can.
Benefits of making a larger down payment
Your ability to save for a down payment is a good sign you’re ready for the financial commitment of owning a home. Here are some clear benefits to waiting until you have a large down payment:
Lower mortgage rate: The less money you borrow as a percentage of the home’s value, the less risk your loan poses to the mortgage lender. As a result, larger down payments tend to correlate with lower interest rates.
More equity: The greater percentage of your home you own outright, the more equity you have. That can be especially handy if you’re looking to finance a big renovation project or other purchase because you can tap your home equity through a cash-out refinance, home equity loan or home equity line of credit (HELOC) to borrow money against the value of your home relatively inexpensively.
Lower monthly payments: Because you’re borrowing less money and you likely have a lower interest rate, you can expect lower monthly payments, giving you more cash flow for other financial goals and lifestyle needs.
Cheaper closing costs: The fees you pay to your lender at closing are usually calculated as a percentage of your loan’s total value, so the less you borrow, the less you’ll owe them at closing, too.
More competitive offer: If you’re in a seller’s market and competing with several other buyers, a larger down payment can make your offer more competitive than the others. By showing that you can afford to put more down, you might give the seller more confidence that your loan will close.
How to calculate a down payment
Because down payments are expressed as a percentage of the home’s sales price, you simply need to multiply the sales price by your target percentage to determine how much you’ll need to put down. Here are some examples of how much the down payment would be at different price points:
|Home price*||3% down||3.5% down||5% down||12% down||20% down|
|*Regional median existing-home sale prices, March 2022, National Association of Realtors|
You can use Bankrate’s mortgage calculator to get a sense of how different down payment amounts impact your monthly mortgage payment, and the interest you can save by putting more money down.
How much is the average down payment?
The average down payment in 2021 was $70,612, according to Black Knight data. The median down payment that year, which is often a more accurate representation, was much lower, at $26,000, according to ATTOM Data Solutions.
How to find down payment assistance
Down payment assistance programs can offer help to first-time homebuyers and borrowers who have low to moderate incomes. Down payment assistance can come from a government agency, a nonprofit organization in your community or even your mortgage lender, usually as a:
- Grant: You don’t have to pay any of this money back as long as you meet the program requirements.
- Forgivable loan: You’ll receive the assistance in the form of a second mortgage loan, which is forgivable if you remain in the home for a predetermined amount of time.
- Deferred loan: With this second mortgage loan, you typically don’t have to pay back the loan until you move out, refinance your mortgage or sell your home.
- Low-interest loan: Some lenders and organizations might offer a low-interest second mortgage loan that you need to start making payments on immediately.
- Matched savings program: Also known as individual development accounts (IDAs), these programs are typically offered by government agencies, community organizations and lenders. With the program, the provider typically matches your contribution, so if you put down $5,000, you’ll get another $5,000 from the program.
If you think you might qualify for down payment assistance, consult with your loan officer to find out about the options in your area.
Why mortgage lenders require a down payment
For mortgage lenders — whether it’s a bank, credit union or other type of lender — a down payment helps offset their risk because it means the borrower immediately has some skin in the game and an investment to protect.
The more money you put down, the less the lender stands to lose if you default on payments and the lender has to foreclose, especially early in the loan term. This is why borrowers who put less than 20 percent down usually have to get PMI, as it protects the lender by repaying the unpaid portion of the loan if the borrower defaults.
Down payments on government-backed loans tend to be lower because the loan is at least partially guaranteed by a federal agency. If the borrower defaults, the lender can recoup some or all of the remaining loan amount from the FHA, VA or USDA, depending on the loan program.
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