Most first-time homebuyers do need a down payment, but it does not have to be 20 percent

You will need to put some money down to buy a house, but the amount varies widely depending on the loan type and your financial situation. Conventional loans often require 3 to 5 percent down. Federal Housing Administration (FHA) loans allow as little as 3.5 percent. Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans may require zero down payment if you meet their specific requirements.

The down payment is the portion of the home's purchase price you pay upfront; the lender finances the rest through a mortgage. A smaller down payment means a larger loan, which affects your monthly payment, the interest you pay over time, and whether you will owe mortgage insurance on top of your regular payment.

Key Takeaways

  • FHA loans allow down payments as low as 3.5 percent, making them common for first-time buyers with limited savings.
  • Conventional loans typically require 3 to 5 percent down, though some lenders offer programs with even less if you have good credit.
  • VA and USDA loans may require no down payment if you meet military service or rural property requirements.
  • Putting down less than 20 percent usually means paying mortgage insurance, which adds to your monthly housing cost.
  • The down payment amount you choose affects how much you borrow, your monthly payment, and the total interest paid over the life of the loan.

How down payment size affects your monthly payment and total cost

A smaller down payment lowers the cash you need upfront but increases the amount you borrow. If you buy a $300,000 house with 3 percent down, you put $9,000 down and borrow $291,000. With 10 percent down, you put $30,000 down and borrow $270,000. That $21,000 difference in the loan amount changes your monthly payment and the total interest you pay over 30 years.

The other cost to consider is private mortgage insurance (PMI). When you put down less than 20 percent on a conventional loan, the lender requires you to pay PMI—typically 0.5 to 1.5 percent of the loan amount per year, added to your monthly mortgage payment. FHA loans use a similar product called mortgage insurance premium (MIP). These insurance payments protect the lender if you stop paying, but they are a real cost to you. Once you build enough equity in the home (usually 20 percent), you can request to remove PMI on a conventional loan; FHA mortgage insurance is harder to remove and may stay for the life of the loan depending on when you took it out.

FHA loans: the most common path for first-time buyers with limited savings

FHA loans are backed by the Federal Housing Administration and are designed for buyers who cannot put down 20 percent. You can put down as little as 3.5 percent, and the FHA does not set a minimum credit score—though most lenders require 580 or higher. FHA loans allow higher debt-to-income ratios than conventional loans, meaning you can may have access to even if you carry student loans, car payments, or credit card debt.

The trade-off is that FHA loans require mortgage insurance from the start. You pay an upfront mortgage insurance premium (usually 1.75 percent of the loan amount) at closing, and then an annual premium added to your monthly payment. The annual premium stays for the life of the loan if you put down less than 10 percent, or until you reach 20 percent equity if you put down 10 percent or more.

Conventional loans with low down payments

Conventional loans are not backed by the federal government; they are issued by banks, credit unions, and mortgage companies. Most conventional lenders require 3 to 5 percent down, though some offer programs with as little as 3 percent or even 1 to 2 percent for borrowers with strong credit and stable income. Conventional loans typically require a credit score of 620 or higher, though better rates go to borrowers with 740 or above.

Like FHA loans, conventional loans with less than 20 percent down require PMI. However, PMI on conventional loans can be removed once you reach 20 percent equity, either by paying down the principal or by refinancing. This makes conventional loans potentially cheaper over time if you plan to stay in the home long enough to build equity and remove the insurance.

VA and USDA loans: zero down payment options

If you are a veteran, active-duty service member, or surviving spouse, you may be able to use a VA loan with zero down payment. VA loans are may provide by the Department of Veterans Affairs and do not require PMI. Instead, you pay a one-time funding fee (usually 2.3 percent of the loan amount for first-time users) at closing. VA loans have no maximum loan amount in most cases, no credit score minimum set by the VA itself (though lenders typically require 620 or higher), and no prepayment penalty.

USDA loans are for rural properties and are backed by the United States Department of Agriculture. If you buy a home in a USDA-may be able to access rural area and meet income limits, you can put zero down. USDA loans require a may provide fee (similar to a VA funding fee) but no PMI. Income limits vary by county and family size, so check your local USDA office or a USDA-approved lender to see if you may have access to.

Saving for a down payment versus buying sooner with less

You face a real choice: save longer to put down more money, or buy sooner with a smaller down payment and pay mortgage insurance. Putting down more money reduces your monthly payment and total interest, but it delays homeownership and keeps your savings tied up. Putting down less lets you buy now and build equity in a home instead of renting, but you pay insurance and interest on a larger loan.

The math depends on your situation. If you are renting and your rent is close to what a mortgage payment would be, buying sooner with 3 to 5 percent down may make sense. If you can save another 5 to 10 percent in a year or two and rates are stable, waiting might lower your long-term cost. A mortgage lender or broker can run the numbers for your specific situation and show you the total cost under different down payment scenarios.

What happens if you do not have savings for a down payment

If you have no savings at all, you have limited options. Some employers, nonprofits, and state housing programs offer down payment assistance—grants or forgivable loans that cover part or all of your down payment. These programs vary by location and employer, so check with your state housing finance agency or a local nonprofit housing counselor. The Department of Housing and Urban Development (HUD) maintains a list of approved housing counselors who can point you toward assistance programs in your area at no cost.

Another option is to ask a family member for a gift. Most lenders allow down payment gifts from relatives, though they require a signed letter stating it is a gift and not a loan you must repay. Some programs have limits on how much of your down payment can come from a gift, so check with your lender.

Frequently Asked Questions

Can I buy a house with no money down as a first-time buyer?

Yes, if you meet the requirements for a VA loan (military service or surviving spouse status) or a USDA loan (rural property and income limits). Conventional and FHA loans require at least 3 to 3.5 percent down. Some down payment assistance programs may cover this amount, but you will need to research what is available in your area.

Is PMI worth paying if it means I can buy sooner?

That depends on your rent versus your potential mortgage payment, how long you plan to stay, and whether you can remove PMI later. If your rent is high and you plan to stay at least five to seven years, buying with PMI may cost less overall than renting and waiting. A mortgage lender can show you the total cost comparison.

What is the difference between FHA and conventional loans for down payments?

Both allow 3 to 3.5 percent down, but FHA loans are easier to get if your credit is lower or your debt is higher. Conventional loans may offer better long-term cost if you can remove PMI by reaching 20 percent equity. FHA mortgage insurance is harder to remove and may stay for the life of the loan.

Do I need a perfect credit score to put down only 3 percent?

No. FHA loans have no minimum credit score set by the FHA itself, though most lenders require 580 or higher. Conventional loans typically require 620 or higher for 3 percent down, though some lenders go lower. The lower your credit score, the higher your interest rate will be.

Can I use a gift from family for my down payment?

Yes. Most lenders allow down payment gifts from relatives, but they require a signed letter stating it is a gift and not a loan you must repay. Some programs limit how much of your down payment can be a gift, so confirm with your lender before accepting money.