A down payment is the cash you give the seller or lender upfront when you buy a house

When you buy a house, you do not pay the full price all at once. Instead, you pay a portion of the purchase price out of your own pocket on the day you close — this is your down payment. The lender then finances the rest through a mortgage loan. If a house costs $300,000 and you make a 20% down payment, you pay $60,000 that day and borrow $240,000.

The down payment serves two purposes for the lender: it reduces the amount they have to lend you, and it shows them you have skin in the game. If you have already paid $60,000 toward the house, you are less likely to walk away or stop paying the mortgage. Lenders use down payment size to decide whether to approve your loan and what interest rate to charge you.

Down payments range from 3% to 20% of the purchase price for conventional mortgages, though some loan programs allow as little as 3% and others require 20% or more. The size of your down payment affects your monthly payment, the total interest you pay over the life of the loan, and whether you will have to pay mortgage insurance.

Key Takeaways

  • Your down payment is the cash you pay toward the house price on closing day; the lender finances the rest through a mortgage.
  • Larger down payments lower your monthly mortgage payment, reduce total interest paid, and may eliminate the need for mortgage insurance.
  • Down payments below 20% typically require you to pay private mortgage insurance (PMI), which adds to your monthly cost until you reach 20% equity.
  • The money for your down payment must come from your own savings, a gift from a family member, or a down payment assistance program; you cannot borrow it.
  • Closing costs are separate from your down payment and typically range from 2% to 5% of the purchase price.

How down payment size affects your mortgage and monthly payment

The larger your down payment, the smaller the loan amount and the lower your monthly payment. On a $300,000 house at a 7% interest rate over 30 years, a 10% down payment ($30,000) results in a monthly payment of roughly $1,980 before taxes and insurance. A 20% down payment ($60,000) on the same house brings that payment down to roughly $1,680 — a difference of $300 per month or $3,600 per year.

A bigger down payment also means you pay less total interest over the life of the loan. With a 10% down payment, you pay roughly $712,000 in total payments (principal plus interest). With 20% down, that total drops to roughly $604,000. The difference is more than $100,000 over 30 years.

Down payment size also determines whether you pay private mortgage insurance (PMI). If you put down less than 20%, lenders require you to carry PMI to protect themselves if you default. PMI typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment. On a $270,000 loan (10% down on a $300,000 house), PMI might add $100 to $340 per month. Once you build 20% equity in the home through payments, you can request to have PMI removed.

Where down payment money comes from

Your down payment must come from your own funds — savings, investments, or retirement accounts you have already accumulated. Lenders require documentation: bank statements, investment account statements, or proof of funds. They want to see the money has been in your account for at least 60 days, though some programs allow shorter periods.

Family members can gift you down payment money. The gift must be documented in writing, and the family member cannot expect repayment — if it looks like a loan, the lender will count it as debt and reduce how much they will lend you. Some loan programs have limits on how much of your down payment can be a gift; conventional loans typically allow 100% of the down payment to be gifted, while FHA loans cap gifts at a percentage of the purchase price.

You cannot borrow your down payment from another lender, credit card, or personal loan. Doing so increases your debt-to-income ratio, which lenders use to decide whether you can afford the mortgage. If you take on new debt before closing, your loan may be denied or your interest rate may increase.

Down payment assistance programs and lower down payment options

If you do not have 20% saved, you have options. FHA loans (backed by the Federal Housing Administration) allow down payments as low as 3.5% of the purchase price. VA loans (for military members and veterans) often require no down payment at all. USDA loans (for rural properties) also allow zero down payment for borrowers who meet income limits.

Many states, counties, and cities run down payment assistance programs that provide grants or low-interest loans to help first-time buyers. These programs vary widely: some cover a percentage of your down payment, others cover closing costs, and some do both. Your mortgage lender or a local housing authority can tell you which programs you may be able to use in your area.

Employer down payment assistance is less common but does exist. Some large employers offer loans or grants to employees buying a home. Check with your human resources department to see whether your employer has such a program.

Down payment versus closing costs — they are separate expenses

Your down payment and closing costs are two different amounts due on closing day. The down payment goes toward the purchase price. Closing costs cover the lender's fees, title insurance, appraisal, inspection, attorney fees, property taxes, and homeowners insurance. Closing costs typically range from 2% to 5% of the purchase price — on a $300,000 house, that is $6,000 to $15,000.

You need cash for both. If you are putting 10% down on a $300,000 house, you need $30,000 for the down payment plus $6,000 to $15,000 for closing costs — a total of $36,000 to $45,000 in cash before you own the home. Some lenders allow you to roll closing costs into the loan, but this increases your total loan amount and the interest you pay.

What happens if you cannot save a full down payment

A smaller down payment is not a failure — it is a choice with trade-offs. With 5% down instead of 20%, you pay PMI, your monthly payment is higher, and you pay more total interest. But you get into a home sooner and start building equity immediately. For many buyers, especially first-time buyers, this trade-off makes sense.

If saving for a down payment feels impossible, explore whether you may have access to for a down payment assistance program in your area. These programs exist specifically to help people who have stable income and good credit but have not had time to save. You can also ask your lender about first-time buyer programs, which sometimes offer better terms or lower down payment requirements.

Delaying the purchase to save more is also valid. Every additional percentage point you save reduces your monthly payment and total interest. If you can wait six months or a year to save an extra 5%, the math often works in your favor over a 30-year loan.

Frequently Asked Questions

Can I use a credit card or personal loan for my down payment?

No. Lenders will see new debt on your credit report and may deny your mortgage or raise your interest rate. Your down payment must come from savings, investments, or a documented gift from a family member.

What if I put down less than 20% — can I remove PMI later?

Yes. Once you have paid down your loan to 80% of the original purchase price (20% equity), you can request PMI removal. Some loans remove it automatically at that point; others require you to ask. Check your loan documents or call your lender to confirm the process.

Do I have to put down 20% to get a good interest rate?

No, but larger down payments typically may have access to for lower rates. A 10% down payment may carry a rate 0.25% to 0.5% higher than 20% down on the same loan. Over 30 years, that difference adds up, but it is not a deal-breaker if you cannot save 20%.

Can my employer help me with a down payment?

Some employers offer down payment assistance as an employee benefit, though it is less common than other benefits. Ask your human resources or benefits department whether your company has a homebuying assistance program.

What if I inherit money right before closing — can I use it for my down payment?

Yes, but you will need to document it. Provide the lender with a copy of the inheritance paperwork or a letter from the executor showing the funds came to you as an inheritance, not a loan. The lender may require the money to be in your account for a short period before closing.