Along with closing costs, the down payment on a house can be a substantial upfront expense. Find out how much is required for a down payment on a house, why you might want to make a larger down payment and which options you have for obtaining the necessary funds.
What is a down payment on a house?
A house down payment is the upfront cash you put down toward the home’s purchase price. The minimum down payment percentage depends on factors such as the mortgage program, your credit score and the lender. The down payment is usually paid at the closing meeting.
Since this initial money helps offset some of the mortgage lender’s risk, it can improve your chances of mortgage loan approval. Additionally, the amount you put down contributes to your home’s equity.
How much is required for a down payment on a house?
Like many homebuyers, you may think you need to put a hefty 20% down on a home. But based on data from the National Association of Realtors, the average down payment on a house actually stands at 6% for first-time homebuyers and 17% for repeat homebuyers.
Your minimum down payment percentage ultimately depends on your financial situation, the property, your lender and the specific loan program. The lowest down payment on a house is none at all, and some government-backed mortgage programs offer this for primary residence purchases. Other loans require down payments ranging from 1% to 20%.
0% down mortgage loans
If you’re trying to find out how to buy a house with no money down, your options include U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans. These loans target specific types of borrowers.
VA loans involve no down payment requirement when the home you choose costs no more than its actual value. However, you can only apply for one if you or your spouse has an approved military affiliation, since the organization requires a Certificate of Eligibility. These loans offer additional benefits such as competitive interest rates, no mortgage insurance premiums and flexible use options. You would need to pay a VA funding fee based on the down payment amount, your military affiliation and the number of VA loans already taken out.
USDA loans also have no minimum down payment, but you’ll need to pick a property in an approved rural location. Your options include USDA Single Family Direct Home Loans and the USDA Single Family Housing Guarantee Program, both of which have income, asset and property restrictions. You'll also need to show that you don't already have a suitable home.
USDA Single Family Direct Home Loans have the lowest income limits and most restrictive property requirements. But if you qualify, you can also get temporarily reduced mortgage payments. The USDA Single Family Housing Guarantee Program provides more options for buying or building a property, sets no property price limit and admits applicants who earn up to 115% of their area’s median income. However, it requires a loan guarantee fee.
While VA and USDA loans are the largest categories of zero-down payment mortgages, there are other options that some people may be eligible for. Physicians may qualify for zero-down mortgages with no private mortgage insurance through programs offered by some lenders. Additionally, some credit unions offer loans that don't require a down payment to their members.
1-3% down mortgage loans
Backed by either Freddie Mac or Fannie Mae, conventional mortgage programs for primary residences can allow for down payments as low as 3%, and they usually require good credit. The Fannie Mae HomeReady and Freddie Mac Home Possible programs don't have a first-time homebuyer requirement and can help you get a mortgage even with a low income. The income limits for these programs are 80% and 100% of your area's median income for HomeReady and Home Possible, respectively.
Some lenders such as Rocket Mortgage and Riverbank Finance offer programs that give you 2% toward the minimum down payment so that you only need to come up with 1%. While these offers can come with restrictions on the down payment amount allowed, they can make homeownership more accessible. Plus, lenders may offer other perks such as waiving the private mortgage insurance (PMI) which usually applies to conventional mortgages.
If you don’t meet the HomeReady or Home Possible income limits, 3% down conventional programs exist, too. These include Fannie Mae's 97% Loan-to-Value (LTV) Standard program and Freddie Mac's HomeOne program. You’ll need to be a first-time homebuyer to qualify.
3.5% down mortgage loans
Backed by the government, Federal Housing Administration (FHA) loans require a 3.5% minimum down payment for a house as long as you have a credit score of at least 580. The minimum rises to 10% with a credit score of 500 to 579.
While these loans have lenient credit requirements and no income restrictions, they require upfront and ongoing mortgage insurance premiums. You can also only use an FHA loan for a primary residence.
10-20% down mortgage loans
You might make a 10% or higher down payment to make yourself more appealing to the lender or to qualify for a larger loan amount than a smaller down payment allows. And if you're buying something other than a primary residence, the lender will likely want 10% down for vacation homes and 15% down for investment properties.
You may also need a larger down payment — up to 20% — if you plan to take out a conventional loan that exceeds the conforming loan limits that the Federal Housing Finance Agency has set. Depending on the location, these usually range from $726,200 to $1,089,300. In that case, you would need to seek a jumbo loan to borrow enough funds. These loans also require good credit and sufficient cash reserves.
The pros of larger home down payments
If you can afford it, making more than the minimum down payment on a house has its advantages. You can have more manageable monthly payments, pay less in the long run and benefit from having more immediate equity in your home.
More affordable monthly mortgage payments
Since the down payment reduces the mortgage amount needed, you’ll have a lower monthly mortgage payment if you put more money down.
For example, if you buy a $250,000 home and take out a 30-year mortgage with a 7% interest rate, a sample monthly payment — excluding PMI, taxes and insurance, which can all vary widely — may look like the following:
- 3% down: $1,613.36
- 5% down: $1,580.09
- 10% down: $1,496.93
- 20% down: $1,330.60
Not only does a smaller payment mean more room in your budget for other expenses, but it could also help reduce the risk of defaulting on your mortgage and losing the home. You may also find it easier to pay off your mortgage early.
Less interest paid
Mortgage lenders consider the down payment amount as one factor for determining mortgage interest rates. By putting more money down, you reduce the risk to the lender, who may reward you with a lower interest rate. While these interest savings especially add up over time, the lower rate matters for your closing costs, as well, since they include some prepaid interest.
Higher upfront home equity
Your home’s equity equals its value minus the money you owe on it. Meeting only the minimum down payment requirements could mean no immediate equity at all. But by putting down a significant amount, you can reduce the risk of going underwater on your home loan, where you owe more than your house’s value. If you try to sell a home with an underwater mortgage, you may not make enough money off the sale to pay off your lender.
Having more equity also helps if you need home equity financing later for home improvements.
Some mortgage programs require upfront or ongoing fees that you can reduce or eliminate with a sufficient down payment. For example, the VA funding fee goes down as long as you make a 5% minimum down payment. You can also avoid having to pay private mortgage insurance for conventional loans if you put down 20%.
More appealing offer
Larger down payments may also sway home sellers confronted with multiple offers. As the housing market has become more competitive, many prospective buyers may find that a larger down payment may help them edge out the competition by making their offer more attractive to the sellers.
The cons of larger home down payments
While making the ideal down payment for a house offers financial benefits, having the cash tied to the home comes with drawbacks, including:
Lower cash reserves for emergencies
By using much of your savings for your down payment, you can experience financial struggles if a job loss or other emergency occurs. You may end up needing to borrow money to cover unexpected expenses, and you could even default on your mortgage if you run out of cash for payments. To reduce the risk, make sure you have a sufficient emergency fund before purchasing a home.
Potential delays for home shopping
If you use a house down payment calculator, you’ll see how large the target amount can be. Obtaining this lump sum may require delaying your home-buying plans for a long time.
In the meantime, property prices or interest rates could rise, or the home inventory could fall so you can’t find what you want. If you currently rent, delaying buying a home means not reaping the benefits of owning such as building up equity and having more stability and control over your home.
Risk of your home losing value
While putting down the best down payment for a house helps build equity right away, declining property values could cut into it quickly. This can happen due to economic changes or local factors in your neighborhood. If this happens, you may feel uneasy knowing you put so much cash in the home and can’t get it back.
Less cash for other goals
Making a high down payment comes at the cost of not having the money to use for other goals. This could mean having to wait to pay down other debts or not having enough to save for your retirement or make home renovations. A lower down payment could allow you to accomplish multiple goals.
How to come up with a down payment for a house fast
You could get a second job, sell unneeded items or cut expenses and put the money toward your down payment. You might also borrow or withdraw from a retirement account, but you should first consider potential penalties. In addition to asking for down payment gifts from people you know, check into state and local down payment assistance programs that offer grants or loan you the funds.
Can you buy a house without a down payment?
If you're wondering how to buy your first home without a down payment, you could accomplish this if you qualify for a VA or USDA loan. Otherwise, research down payment assistance programs that may cover the minimum down payment for your mortgage type. Just keep in mind that you’ll still need funds to cover your closing costs or else roll them into the loan.
How to buy a house with low income and no down payment
USDA mortgages target homebuyers with no down payment funds and low incomes. If you don’t qualify for one, you could consider a co-borrower with sufficient income.
As long as you don’t need to purchase a home immediately, you can get more loan options if you work on your finances. Actions could include reducing other debts, raising your income, improving your credit and seeking potential down payment sources. You can also seek advice from the best mortgage lenders about how to get the down payment needed for a house and qualify with a low income.
Who gets the down payment on a house?
At the time of closing, you’ll use a cashier’s check or wire transfer to provide the down payment to your loan officer or settlement agent. The home’s seller eventually gets the down payment and other money left over from the home’s sale price after reductions for costs such as their past mortgage payoff, real estate agent's commission and other fees.
Summary of Money's how much is required for a down payment on a house
If you plan on buying a house with no down payment or a very small one, carefully explore your mortgage options and understand the ongoing costs. While the low down payment may get you a home faster, it can also mean ongoing fees such as private mortgage insurance or a higher upfront fee for certain mortgage programs. A large down payment can offer long-term savings and lower payments, but it leaves less money available if you experience any hardship. Work with your lender to explore the pros and cons of your options and determine what works best for you.