How Much Down Payment Do You Need for a House?

The persistent myth in real estate is that you need to save 20% before you can buy a home. If that were true, the average first-time buyer in most major cities would be renting until their mid-forties. The reality is more flexible — and more nuanced.

The right down payment depends on the loan program you use, your financial position, and the tradeoffs you're willing to make between upfront cost and monthly payment.

The Actual Minimums

Down payment requirements vary by loan type:

Conventional loans: 3% minimum for qualifying first-time buyers through programs like Fannie Mae's HomeReady or Freddie Mac's Home Possible. Standard conventional loans require 5% for most buyers, though some lenders go as low as 3% with strong credit.

FHA loans: 3.5% minimum with a credit score of 580+. Drops to 10% minimum for scores 500–579.

VA loans: 0% down for eligible veterans and active-duty military. No private mortgage insurance required.

USDA loans: 0% down for eligible rural and suburban areas with income limits.

Jumbo loans (above conforming limits): Typically 10–20%, with many lenders requiring 20% on larger amounts.

So the floor for most first-time buyers is 3–3.5%, not 20%.

What Down Payment Size Actually Does to Your Costs

Down payment affects your monthly payment in two ways: loan balance and mortgage insurance.

Loan balance. A larger down payment means borrowing less, which reduces principal and interest. On a $350,000 home:

• 3% down = $339,500 loan
• 10% down = $315,000 loan
• 20% down = $280,000 loan

At 7% interest over 30 years, the monthly principal and interest difference between 3% and 20% down is roughly $350–$400/month.

Mortgage insurance. If you put down less than 20% on a conventional loan, you pay PMI — private mortgage insurance. PMI typically costs 0.5%–1.5% of the loan amount annually, paid monthly. On a $315,000 loan at 0.8% PMI, that's $210/month. The good news: PMI drops off automatically once you reach 20% equity (under federal law for loans with automatic cancellation rights).

FHA mortgage insurance works differently. You pay an upfront premium (1.75% of the loan, typically rolled into the loan) plus an annual premium (0.55%–1.05%) for the life of the loan if you put down less than 10%. This is why some buyers with good credit prefer to use conventional loans even at higher rates — to avoid permanent mortgage insurance.

Why 20% Down Isn't Always Better

The conventional wisdom is "put 20% down to avoid PMI." But this assumes you have 20% available, which many first-time buyers don't. Even if you do, there's a case against it:

Opportunity cost of capital. Twenty percent down on a $400,000 home is $80,000. If you invest that money instead and earn a return above your mortgage rate, you come out ahead financially. This math favors putting less down, especially when mortgage rates are moderate and investment markets are healthy.

Cash reserve. Closing costs typically run 2–5% of the purchase price. Moving costs, immediate repairs, new appliances, and the first few months of unexpected homeownership expenses add up quickly. Arriving at closing with your last dollar tied up in the down payment leaves you financially exposed. Most financial advisors suggest maintaining 3–6 months of expenses as an emergency fund after closing.

PMI isn't permanent. On a conventional loan, PMI cancels when you hit 20% equity. If home values in your market appreciate, you may reach that threshold faster than you'd expect.

You might not be planning to stay. If you're likely to sell within 5–7 years, the long-term interest savings from a larger down payment may not justify the larger upfront outlay.

What Down Payment First-Time Buyers Actually Use

Among first-time buyers, the median down payment is considerably below 20%. Many put down 5–10% on conventional loans, or 3.5% on FHA loans. Buyers with access to family gifts, inheritance, or down payment assistance programs often have more flexibility.

Down payment gifts from family members are allowed under most loan programs, with documentation requirements. The gift must be verified as a gift (not a loan) through a signed gift letter, and in most cases the funds need to be in your account for a period of time before closing (the "seasoning" requirement varies by lender and loan type).

Down Payment Assistance Programs

Forty-nine states have some form of down payment assistance (DPA) for first-time buyers. Programs vary enormously — some offer outright grants, others provide forgivable loans, and others provide second mortgages at 0% interest deferred until sale.

Eligibility typically depends on income limits (often 80–120% of area median income), purchase price caps, and completing a homebuyer education course. Programs can be stacked in some states, combining federal and state resources.

The best place to find programs in your area: your state housing finance agency, and HUD's official list of housing counseling agencies. These are real programs with real money attached — many buyers leave them on the table simply because they didn't know to look.

For Buyers Outside the US

UK: No PMI equivalent, but a larger deposit typically unlocks better mortgage rates. Deposits below 10% are possible but rate products are limited and often significantly more expensive. First-time buyers with a Lifetime ISA (LISA) receive a 25% government bonus on savings up to £4,000/year, which can contribute to a deposit.

Canada: Less than 20% down triggers mandatory CMHC mortgage insurance — 2.8%–4% of the loan amount depending on down payment size, added to the loan balance. Unlike US PMI, this cannot be canceled once added. The minimum down payment is 5% on homes up to $500,000 CAD, and 5% on the first $500,000 plus 10% on the remainder for homes $500,000–$999,999.

Australia: LMI (Lenders Mortgage Insurance) applies when borrowing more than 80% of the property value. LMI is a lump sum paid at settlement (or added to the loan), can be substantial on higher-priced properties, and is non-refundable. The First Home Guarantee (formerly First Home Loan Deposit Scheme) allows eligible buyers to purchase with 5% deposit without LMI, with the government guaranteeing up to 15%.

New Zealand: LVR restrictions mean most owner-occupiers need at least 20% deposit, though some exceptions apply for new builds. The First Home Loan allows 5% deposit for eligible buyers, with Kaiinga Ora (Housing NZ) underwriting. KiwiSaver savings can be withdrawn toward a first home deposit after three years of contributions.

How to Decide What to Put Down

There's no universally correct answer. Run through these questions:

1. What's the minimum required for the loan program you'll use?
2. After making that down payment, how much cash remains for closing costs and reserves?
3. If you put more down, does PMI go away — and is avoiding PMI worth depleting your savings?
4. What's your expected time in this home? Shorter horizon = less time to recoup the larger down payment.
5. Are any down payment assistance programs available to you?

The First-Time Homebuyer Toolkit includes a Down Payment Decision Worksheet that compares total costs for different down payment scenarios side by side, so you can see the real tradeoffs rather than guessing.

There's no prize for putting down the most money. There is a serious financial risk in putting down so much that you have no cushion left when you own a home — and homes always find ways to cost money at inconvenient times.