What first-time buyers actually put down

Most first-time home buyers put down between 3 and 20 percent of the home's purchase price. The exact amount depends on the loan type you choose, not on what lenders think is ideal. A conventional loan typically requires at least 3 percent down. An FHA loan (Federal Housing Administration) allows as little as 3.5 percent. A VA loan (for military members and veterans) or USDA loan (for rural properties) can require zero down.

The down payment is the cash you bring to closing. If you buy a $300,000 house with a 10 percent down payment, you pay $30,000 upfront and borrow $270,000. The lender holds the deed until you pay off the loan. The size of your down payment affects your monthly payment, how much interest you pay over the life of the loan, and whether you pay mortgage insurance.

First-time buyers often believe they need 20 percent down to get a mortgage. This is not true. Twenty percent is the threshold where you avoid paying private mortgage insurance (PMI), but it is not required to get approved. Most first-time buyers put down less.

Key Takeaways

  • FHA loans allow down payments as low as 3.5 percent, and VA or USDA loans may require zero down, making these options faster to save for than conventional loans.
  • Putting down less than 20 percent means you will pay mortgage insurance on top of your monthly payment, which adds hundreds of dollars per month depending on the loan size and type.
  • Your down payment amount is set by the loan program you choose, not negotiated with the lender, so comparing loan types is how you find what works for your savings.
  • The money you save by putting down 3 percent instead of 20 percent can be used for closing costs, repairs, or an emergency fund after you buy.

How down payment minimums differ by loan type

An FHA loan is the most common choice for first-time buyers because it allows a 3.5 percent down payment and accepts lower credit scores than conventional loans. You pay mortgage insurance for the life of the loan (called UFMIP and MIP). On a $300,000 home, a 3.5 percent down payment is $10,500. You also pay an upfront mortgage insurance premium of 1.75 percent of the loan amount, which can be rolled into your mortgage.

A conventional loan requires at least 3 percent down if you have a credit score of 620 or higher. Mortgage insurance is required if you put down less than 20 percent, but it can be removed once you reach 20 percent equity in the home (through payments or home value increase). Conventional loans usually have lower interest rates than FHA loans if your credit is good.

A VA loan is available to active-duty military, veterans, and some surviving spouses. It requires zero down payment and no mortgage insurance. You pay a one-time VA funding fee (usually 2.3 percent of the loan amount for first-time users), which can be rolled into the mortgage. A USDA loan works similarly for buyers in may be able to access rural areas: zero down, no mortgage insurance, and a one-time may provide fee.

State and local programs sometimes offer down payment help for first-time buyers, usually in the form of grants or forgivable loans. These vary widely by location and income. Your real estate agent or local housing authority can tell you what exists in your area.

What happens to your monthly payment when you put down less

The lower your down payment, the larger your loan and the higher your monthly payment. On a $300,000 home at 7 percent interest over 30 years, the difference between 3 percent and 20 percent down is roughly $200 to $250 per month in principal and interest alone. Add mortgage insurance and the gap widens.

Mortgage insurance is the cost that makes a small down payment expensive. On an FHA loan with 3.5 percent down, mortgage insurance runs about 0.55 percent of the loan amount per year, paid monthly. On a $290,000 FHA loan, that is roughly $133 per month. On a conventional loan with 3 percent down, PMI is typically 0.5 to 1.5 percent per year depending on your credit score and the lender. The better your credit, the lower the PMI rate.

Mortgage insurance on an FHA loan stays for the life of the loan. On a conventional loan, PMI drops off automatically once you reach 20 percent equity, or you can request removal once you hit that threshold. This means a conventional loan with 5 percent down becomes cheaper than an FHA loan after several years of payments, even though the FHA loan started with a lower down payment.

How to decide what down payment to aim for

Start by asking: how much can you save without draining your emergency fund? A down payment is not the only money you need at closing. You also pay for an appraisal, title search, homeowners insurance, property taxes, and lender fees. These closing costs typically run 2 to 5 percent of the home price. On a $300,000 home, closing costs can be $6,000 to $15,000. Some lenders allow you to roll closing costs into the loan, but this increases your monthly payment.

If you have $15,000 saved and are buying a $300,000 home, a 3 percent down payment ($9,000) leaves you $6,000 for closing costs and a small buffer. A 10 percent down payment ($30,000) is out of reach. In this case, an FHA loan at 3.5 percent down makes sense. If you have $80,000 saved, you can afford 20 percent down and avoid mortgage insurance entirely, but you might choose 10 percent down instead and keep $40,000 for repairs, emergencies, or investments.

Consider how long you plan to stay in the home. If you are likely to move within five years, the mortgage insurance you pay on a small down payment may not matter much because you will sell before the insurance costs add up. If you plan to stay 15 years or longer, putting down more to avoid mortgage insurance saves you tens of thousands of dollars.

Saving for a down payment when you are behind on timeline

If you need to buy soon but have not saved much, a 3 percent down payment with an FHA or conventional loan gets you into a home faster than waiting to save 20 percent. The trade-off is mortgage insurance, which you pay for years. Calculate the total cost: if mortgage insurance adds $150 per month for 10 years, that is $18,000 extra. If you can save that $18,000 in two years instead, waiting might be worth it. If you cannot, buying now with a small down payment and refinancing later (once you have paid down the loan or your home value rises) is a real option.

Some employers, nonprofits, and government agencies offer down payment assistance programs. These are grants or forgivable loans that do not have to be repaid. may be able to access depends on income, location, and the program. Ask your employer's HR department or search your city or county housing authority website for what is available where you live.

What to avoid when planning your down payment

Do not borrow the down payment from a credit card, personal loan, or family member (unless it is a true gift with no repayment expected). Lenders check your debt-to-income ratio before approving a mortgage. A new loan or credit card balance can disqualify you or lower the amount you can borrow. If a family member gives you money, the lender will ask for a gift letter stating it does not need to be repaid.

Do not drain your savings completely to hit a specific down payment target. Lenders want to see that you have reserves — usually two to three months of mortgage payments in the bank after closing. If you have $20,000 saved and put down $18,000, you have only $2,000 left for emergencies. A major repair or job loss becomes a crisis. A smaller down payment with mortgage insurance is safer than a large down payment that leaves you broke.

Do not assume a larger down payment always saves money. On an FHA loan, the mortgage insurance stays forever, so putting down 10 percent instead of 3.5 percent saves you insurance costs but ties up cash you could use elsewhere. On a conventional loan, PMI drops off, so a larger down payment does save money over time. Know which loan type you are using before you decide how much to save.

Frequently Asked Questions

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

Yes. The lender will require a gift letter from the family member stating the money is a gift and does not need to be repaid. The lender will also verify the money came from the family member's account, not from a loan. Some programs limit how much of your down payment can be a gift; FHA allows 100 percent gift funds, while some conventional loans require you to put in at least 3 percent of your own money.

What if I only have 2 percent saved?

You cannot get a conventional or FHA loan with 2 percent down. Your options are a VA loan (if you may have access to) or a USDA loan (if the property is in an may be able to access rural area). If neither applies, you need to save more or explore down payment assistance programs in your area. Some state and local programs cover the gap between what you have saved and the minimum required.

Does a larger down payment mean a lower interest rate?

Not directly. Your interest rate is set by the lender based on your credit score, the loan type, and current market rates. A larger down payment does not change the rate itself, but it does lower your monthly payment because you are borrowing less. It also removes mortgage insurance, which is a separate cost on top of interest.

Can I remove mortgage insurance after I pay it for a while?

On a conventional loan, yes. PMI drops off automatically once you reach 20 percent equity in the home, or you can request removal once you hit that threshold. On an FHA loan, mortgage insurance stays for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more on an FHA loan, insurance drops off after 11 years.

Should I wait to save 20 percent or buy now with less?

This depends on your timeline, local home prices, and how long you plan to stay. If home prices are rising faster than you can save, buying now with a small down payment and refinancing later may be cheaper than waiting. If prices are stable or falling, waiting to save more avoids years of mortgage insurance payments. Calculate both scenarios with a mortgage calculator to see the total cost difference.