Most mortgages require a down payment, but the amount varies widely
You do not have to put down 20 percent to buy a house. That number is a myth that stops many people from buying when they could. Most lenders will accept down payments as low as 3 percent of the purchase price, and some programs go lower. A house that costs $300,000 with a 3 percent down payment means you put $9,000 down and borrow the rest.
The catch is that smaller down payments come with costs. You will pay private mortgage insurance (PMI) — a monthly fee added to your mortgage payment — until you have paid down enough of the loan. The lower your down payment, the higher your PMI and the longer you pay it. On that $300,000 house with 3 percent down, PMI might add $150 to $300 per month to your payment for 10 years or more.
A few mortgages exist with zero down payment, but they are not common and come with their own trade-offs: higher interest rates, stricter income requirements, or limits on the type of property you can buy. Most people who put nothing down are either military (VA loans) or buying in a rural area (USDA loans).
Key Takeaways
- Down payments typically range from 3 to 20 percent, and you can buy with as little as 3 percent on a conventional loan.
- Putting down less than 20 percent triggers PMI, which is an extra monthly cost that stays on your loan until you reach 20 percent equity.
- VA loans (military) and USDA loans (rural properties) may allow zero down, but they have strict may be able to access rules and geographic limits.
- The size of your down payment affects your interest rate, monthly payment, and total cost over the life of the loan.
- Saving for a larger down payment reduces your monthly costs but delays your purchase; a smaller down payment lets you buy sooner but costs more overall.
How down payment size affects your monthly payment and total cost
A smaller down payment lowers the barrier to buying now, but it raises what you pay later. On a $300,000 house at a 7 percent interest rate over 30 years, the difference is stark. With 20 percent down ($60,000), your principal and interest payment is roughly $1,260 per month. With 5 percent down ($15,000), your payment jumps to $1,512 per month — and that does not include PMI, which could add another $150 to $250.
Over 30 years, that extra $250 per month in PMI alone totals $90,000. You also pay interest on a larger loan amount. The total interest you pay over the life of the loan can be $50,000 to $100,000 more with a 5 percent down payment than with 20 percent down, depending on your interest rate and the house price.
The trade-off is timing. If you wait five years to save up 20 percent down, house prices may rise, and you will be buying a more expensive house anyway. If you buy now with 5 percent down, you build equity immediately and can refinance later if rates drop or your financial situation improves.
Down payment programs that lower the amount you need to save
Many states and cities offer down payment assistance through grants or low-interest loans. These programs are run by housing finance agencies, nonprofits, and sometimes employers. They do not replace your mortgage — they sit on top of it — but they reduce the cash you have to bring to closing.
Common programs include state housing finance agency grants (which vary by state but often cover 3 to 10 percent of the purchase price), employer-sponsored down payment help (offered by some large employers), and nonprofit grants tied to your income or the neighborhood you are buying in. Some programs require you to take a homebuyer education course first, which typically takes a few hours online or in person.
The catch is that these programs have income limits, purchase price caps, and geographic restrictions. A grant that works in one county may not work in the next. Your mortgage lender can tell you which programs you might reach, or you can search your state's housing finance agency website directly by name (for example, "New York State Housing Finance Agency" or "California Housing Finance Agency").
What happens if you cannot save a down payment right now
If you have no savings and no access to down payment assistance, you have a few paths forward. The first is to wait and save, even if it takes years. The second is to ask family members to gift you the down payment — lenders allow this, but they require a signed letter stating it is a gift and not a loan you have to repay.
The third is to look for a zero-down program. VA loans (for military members and veterans) require no down payment and no PMI, though you pay a funding fee instead. USDA loans (for rural properties) also allow zero down, but you must meet income limits and the property must be in an may be able to access rural area. FHA loans allow 3.5 percent down, which is lower than conventional loans, but FHA mortgage insurance is mandatory for the life of the loan, not just until you reach 20 percent equity.
The fourth option is to improve your financial situation first. If your credit score is low or your debt-to-income ratio is high, lenders will charge you a higher interest rate or deny you altogether. Paying down debt and raising your credit score can lower your interest rate by 0.5 to 1 percent, which saves tens of thousands over 30 years — often more than the cost of waiting to save a larger down payment.
PMI: what it costs and when it stops
Private mortgage insurance protects the lender if you default, but you pay for it. The cost depends on your down payment size, credit score, loan amount, and the type of mortgage. On a $300,000 loan with 5 percent down and a 700 credit score, PMI might run $150 to $250 per month. With a 10 percent down payment, it drops to $100 to $150 per month.
PMI stops automatically once you reach 20 percent equity in the home — meaning you have paid down the loan to 80 percent of the original purchase price. On a $300,000 house, that happens when the loan balance hits $240,000. Depending on your down payment and interest rate, this can take 8 to 15 years. You can also request PMI removal earlier if your home has appreciated and you have built equity faster, though lenders have different rules about this.
You can also remove PMI by refinancing once you have enough equity, though refinancing costs money upfront (typically $2,000 to $5,000 in closing costs) and resets your loan term. Refinancing makes sense only if you plan to stay in the house long enough to recoup those costs through PMI savings.
Comparing down payment sizes: 3 percent, 10 percent, and 20 percent
| Down Payment | Cash at Closing | Loan Amount | Monthly P&I (approx.) | PMI (approx.) | Total Monthly Payment |
|---|---|---|---|---|---|
| 3% | $9,000 | $291,000 | $1,935 | $175–$250 | $2,110–$2,185 |
| 10% | $30,000 | $270,000 | $1,795 | $100–$150 | $1,895–$1,945 |
| 20% | $60,000 | $240,000 | $1,595 | $0 | $1,595 |
Estimates based on a $300,000 purchase price, 7% interest rate, 30-year loan, and a 700 credit score. Actual payments vary by lender, location, property taxes, insurance, and HOA fees. This table shows principal and interest only; your actual payment includes taxes and insurance.
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes. Lenders allow down payment gifts from family members, but they require a signed letter from the person giving the money stating it is a gift and not a loan you must repay. The gift giver does not need to be a relative, though some lenders have stricter rules about gifts from friends or employers.
What if I put down less than 3 percent?
Conventional mortgages typically do not go below 3 percent down. FHA loans allow 3.5 percent down. If you cannot save that much, your options are VA loans (zero down, military only), USDA loans (zero down, rural properties only), or down payment assistance programs in your state or city.
Does a larger down payment always mean a lower interest rate?
Usually, yes. Lenders charge lower interest rates to borrowers with larger down payments because the risk is lower. The difference is typically 0.25 to 0.5 percent, which adds up over 30 years. Your credit score, income, and debt levels also affect your rate.
Can I remove PMI before reaching 20 percent equity?
Some lenders allow PMI removal if your home has appreciated significantly and you request it, but rules vary. Refinancing is another option if rates are favorable, though you pay closing costs upfront. Ask your lender about their PMI removal policy before you sign.
What is the difference between PMI and FHA mortgage insurance?
PMI is used on conventional loans and stops once you reach 20 percent equity. FHA mortgage insurance is used on FHA loans and stays for the life of the loan if you put down less than 10 percent. FHA loans allow lower down payments (3.5 percent) but carry permanent insurance costs.