The down payment amount that works depends on your loan type and what you can afford without draining savings
There is no single "good" down payment—it depends on which loan program you may have access to for, how much cash you have available, and whether you want to pay mortgage insurance. Conventional loans typically want 20 percent down, but FHA loans let you put down as little as 3.5 percent. VA loans and USDA loans often require zero down. The real question is not what percentage is ideal, but what amount leaves you with enough cash reserves after closing to handle repairs, property taxes, and emergencies without going into debt.
A larger down payment lowers your monthly payment and eliminates private mortgage insurance (PMI), which can cost 0.5 to 1.5 percent of your loan amount per year. A smaller down payment lets you buy sooner and keeps cash in your pocket for other needs. Both are legitimate choices depending on your situation.
Key Takeaways
- Conventional loans usually require 20 percent down to avoid PMI, but FHA loans let you put down 3.5 percent, and VA or USDA loans may require nothing.
- Putting down less than 20 percent on a conventional loan means paying PMI until you reach 20 percent equity, which adds to your monthly cost.
- Your down payment plus closing costs (typically 2 to 5 percent of the purchase price) must come from your own funds—lenders verify the source.
- Keeping 3 to 6 months of mortgage payments in savings after closing protects you from foreclosure if you lose income.
How down payment size affects your monthly payment and total cost
A larger down payment directly reduces the amount you borrow, which lowers your monthly principal and interest payment. On a $300,000 house, putting down 20 percent ($60,000) means borrowing $240,000. Putting down 5 percent ($15,000) means borrowing $285,000. The difference in monthly payment is roughly $150 to $200 depending on your interest rate and loan term.
The catch is PMI. If you put down less than 20 percent on a conventional loan, your lender requires mortgage insurance to protect themselves if you default. PMI typically costs between 0.5 and 1.5 percent of your loan amount annually, paid as part of your monthly mortgage payment. On a $285,000 loan, that could be $120 to $360 per month. PMI drops off automatically once you reach 20 percent equity in the home, but that takes years.
FHA loans work differently: they require an upfront mortgage insurance premium (1.75 percent of the loan, rolled into your balance) plus annual insurance that stays for the life of the loan if you put down less than 10 percent. This makes the total cost of borrowing higher, but it opens homeownership to people with smaller down payments and lower credit scores.
Minimum down payments by loan type
| Loan Type | Minimum Down Payment | Who Offers It | Key Requirement |
|---|---|---|---|
| Conventional | 3 to 20 percent | Banks, credit unions, mortgage lenders | Credit score typically 620+; PMI required below 20% |
| FHA | 3.5 percent | Banks, credit unions, FHA-approved lenders | Credit score 580+; mortgage insurance required |
| VA | 0 percent | VA-approved lenders | Active duty, veteran, or surviving spouse; no PMI |
| USDA | 0 percent | USDA-approved lenders | Income limits; property in may be able to access rural area; no PMI |
What lenders actually look at beyond the percentage
Lenders care less about hitting a magic percentage and more about whether you can afford the payment and have reserves. A 10 percent down payment on a $500,000 house ($50,000) looks different from 10 percent on a $200,000 house ($20,000) when your annual income is $60,000. The first scenario is risky; the second is manageable.
Most lenders want to see that your housing payment (mortgage, taxes, insurance, and PMI) does not exceed 28 percent of your gross monthly income. They also want proof that you have savings left after closing. If you put every dollar toward the down payment and closing costs, you have no buffer for a job loss, medical emergency, or a roof repair. Lenders may deny you or require a larger down payment if your reserves are too thin.
The source of your down payment matters too. Lenders require documentation showing the money came from your own accounts, not a loan. A gift from a family member is allowed, but you will need a signed gift letter stating it does not need to be repaid. Down payment assistance programs exist in many states and cities, but they have income limits and property restrictions.
The case for putting down less than 20 percent
Waiting to save 20 percent down can mean renting for years longer while home prices and rents rise. If you can afford the monthly payment including PMI, and you have 3 to 6 months of expenses in savings, a 5 to 10 percent down payment gets you into a home sooner. You build equity immediately instead of continuing to pay a landlord.
PMI is not permanent. Once you reach 20 percent equity—through a combination of payments and home appreciation—you can request to remove it. In a rising market, this can happen faster than you expect. Some people refinance once they hit 20 percent equity, rolling the PMI removal into a new loan at a better rate.
FHA loans are worth considering if you have a lower credit score or smaller down payment. The upfront and annual insurance costs are higher than conventional PMI, but the lower down payment and credit requirements make homeownership possible for people who would not may have access to otherwise.
The case for putting down 20 percent or more
A 20 percent down payment eliminates PMI entirely, lowering your monthly payment by $100 to $400 depending on the loan size. Over 30 years, that savings adds up significantly. You also borrow less money, so you pay less interest overall.
A larger down payment also gives you negotiating power. In a competitive market, sellers often prefer buyers with substantial down payments because it signals financial stability and reduces the risk of the deal falling apart due to financing issues.
If you have the cash and it does not deplete your emergency fund, a 20 percent down payment is the simplest path. You avoid the complexity of PMI, may have access to for better interest rates, and build equity faster. The tradeoff is that your money is tied up in the home rather than invested elsewhere or available for other opportunities.
How to figure out what down payment makes sense for your situation
Start by calculating what you can afford to put down without going below 3 to 6 months of expenses in savings. If you have $80,000 saved and your monthly expenses are $5,000, you should keep at least $15,000 to $30,000 in reserve. That leaves $50,000 to $65,000 available for down payment and closing costs.
Next, check what loan programs you may have access to for. Get pre-approved with at least two lenders—one conventional and one FHA if your credit is below 740. Pre-approval is free and shows you the interest rate and payment you would actually get at different down payment levels. Compare the total cost: a 5 percent down payment with PMI might cost more or less per month than a 15 percent down payment depending on the rates you may have access to for.
Finally, consider your timeline and risk tolerance. If you are buying in a market where prices are rising and you can afford the payment with PMI, a smaller down payment may make sense. If you are buying in a stable or declining market and you want the lowest possible payment, saving for 20 percent is worth the wait.
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes. The lender will require a signed gift letter from the family member stating the amount, that it is a gift and not a loan, and that repayment is not expected. The gift giver does not need to be related to you by blood or marriage in most cases. You will need to document where the gift came from—usually a bank statement showing the transfer.
What happens if I put down less than 3 percent?
Conventional loans typically do not go below 3 percent down. Some lenders offer 2 percent programs, but they are rare and require excellent credit and income. FHA at 3.5 percent is usually the lowest option available. VA and USDA loans at zero down are available only to specific groups.
Does a bigger down payment mean a better interest rate?
Usually yes, but not always. Interest rates are set by market conditions and your credit score more than your down payment. A larger down payment does reduce your loan-to-value ratio, which can may have access to you for a slightly better rate—typically 0.125 to 0.25 percent lower. Ask your lender to show you rate quotes at different down payment levels.
Can I remove PMI before reaching 20 percent equity?
Conventional PMI can be removed once you request it and reach 20 percent equity through payments alone. FHA 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, the insurance drops off after 11 years. Refinancing is another option if rates drop.
What if I do not have enough for a down payment right now?
Look into down payment assistance programs run by your city, county, or state. Many offer grants or low-interest loans to first-time buyers. The National Housing Finance Agency and NeighborWorks America maintain searchable databases of programs by location. You can also explore first-time buyer programs through credit unions or community banks, which sometimes have lower down payment requirements than larger lenders.