How Much Down Payment Do You Need for a House?

Before you start shopping for a home, you need to know what you can afford — and a big part of that depends on how much you can afford as a down payment.

But how much down payment do you need to be able to afford the house you want? The answer isn’t the same for everyone, but key information can help you determine the right amount to save, the mortgage programs to explore and other resources to consider to help you buy the right home.

— What is a down payment?

— Do you really need to put 20% down?

— How much homebuyers actually put down.

— Types of low down payment mortgages.

— Private mortgage insurance.

— Down payment assistance.

[Read: How to Get Your Credit Ready to Buy a Home]

What Is a Down Payment?

A down payment is an upfront cost – typically 5%-20% of the purchase price- that is usually required when you’re getting a loan. The down payment shows the lender that you’re serious about the purchase and likely won’t default on the mortgage.

Down payments reduce the home loan, which in turn lowers the monthly mortgage amount and overall lifetime cost of the loan.

Do You Really Need a 20% Down Payment?

Beyond being able to buy a home with cash, many lenders and consumers view a 20% down payment with a 30-year, fixed-rate mortgage as ideal.

“That’s kind of the gold standard. Whether or not it’s accurate is a different story, but that’s what people see as the gold standard,” says Ralph DiBugnara, president of Home Qualified, a digital resource for consumers and real estate professionals covering the housing market, and senior vice president and retail divisional leader at financial services firm Cardinal Financial.

How Much Homebuyers Actually Put Down

In reality, the typical U.S. homebuyer is putting far less money on the table at closing. In fact, only people aged 58 and older put down the typical 20% down or more. Here’s how much people are really paying for a down payment, according to the National Association of Realtors 2023 Home Buyer and Seller Generational Trends report.

Age group Median down payment amount
24 to 32 8%
33 to 42 11%
43 to 57 10%
58 to 67 20%
68 to 76 21%
77 to 97 27%
All buyers 14%

Types of Low Down Payment Mortgage Options

The amount of down payment needed for you to be able to secure financing for a home depends on the type of mortgage you qualify for. Your credit score

and history, current income and savings all play a role.

To help you find the right mortgage program to fit your situation, seek out a professional financial expert who can help you explore all options, says Miki Adams, president of CBC Mortgage Agency, a part of the Cedar Band Corp., based in Utah, which provides down payment assistance and loans aimed at underserved markets.

“Our recommendation is (for homebuyers) to find a (U.S. Department of Housing and Urban Development) counseling agency that can work with them one on one,” Adams says. HUD-approved counseling agencies offer free counseling, either in a group or one on one and can be found on HUD’s website.

Here are the mortgage options that can allow for a low down payment:

Conventional Loans

A conventional mortgage is offered by a private lender, often a bank, credit union or non-bank lender, like Rocket Mortgage. A conventional mortgage that meets criteria from Fannie Mae or Freddie Mac may be purchased from the lender by these government-sponsored entities after the mortgage has been issued, and then sold to investors.

Many banks and non-bank lenders offer conventional loans requiring less than 20% down. DiBugnara notes that Fannie Mae and Freddie Mac both have programs requiring just 3.5% down. If you’re putting less than 20% down, however, you will be required to pay mortgage insurance for a conventional loan, which increases your monthly payment.

FHA Loans

A mortgage insured by the Federal Housing Administration often allows for a lower down payment and may be more flexible with credit score requirements than many conventional mortgages. An FHA loan is still issued by a bank or other lender, but it is approved and insured by the FHA.

The minimum down payment required for an FHA loan is 3.5%, but mortgage insurance is required. The FHA allows for mortgage insurance at 1.75% of the loan amount to be paid at closing, or for mortgage insurance to be rolled into the loan.

VA Loans

A loan insured by the U.S. Department of Veterans Affairs can help active duty military, veterans and their families purchase a home.

With a VA loan you may have the option to have a zero percent down payment. There are limits to the size of the loan if no down payment is provided, and those limits depend on the location of the purchase.

USDA Loans

The U.S. Department of Agriculture also offers a zero percent down mortgage program for properties located in eligible rural areas through its Rural Development Guaranteed Housing Loan Program. In addition to the rural setting, the USDA’s zero-down program is aimed at low-income residents looking to achieve homeownership.

In exploring your options, you may find you qualify for multiple programs. Especially in a housing market where multiple bids are common, keep in mind that the mortgage program you choose gets scrutinized by the seller when you submit an offer.

“Sellers are looking for stronger down payments … but they just want to be sure you can secure financing,” DiBugnara says. Some sellers may view a VA or FHA loan as less desirable than a conventional mortgage because the VA and FHA programs require additional steps for approval. While this doesn’t necessarily make them less likely to be approved, a seller may view them as less appealing than a competing offer with a conventional mortgage.

[Read: Best Mortgage Lenders.]

Private Mortgage Insurance

Private mortgage insurance

serves as protection for the lender on the chance that the borrower defaults on his or her loan, and it is only required when the buyer has put less than 20% down. PMI may either be paid up front, at closing or in monthly installments as part of the mortgage payment.

However, DiBugnara notes that adding to the monthly cost can be a slippery slope toward becoming house-poor. “It’s really the mortgage insurance that makes (a home) less affordable,” he says.

To avoid taking on a monthly payment that’s too high, DiBugnara recommends determining the monthly payment you can afford first and setting your budget based on that, even if PMI considerations for a low down payment lowers your budget for a home.

FHA Mortgage Insurance

PMI is no longer required once you reach 20% equity in your home, unless you have an FHA loan. FHA loans have FHA mortgage insurance, which is essentially PMI but issued by the government.

FHA mortgage insurance lasts the entire life of the loan or 11 years if you put 10% down. Otherwise, you’ll need to refinance into another mortgage to get rid of this mortgage insurance.

Down Payment Assistance

Even if a down payment as low as 3.5% feels out of reach, know that you have options to help you achieve homeownership without having to save for a decade.

Down payment assistance programs are widespread throughout the U.S. to help provide the one-time funds necessary to afford a down payment. Some down payment assistance programs serve as a second lien on the home, which can be paid back slowly or forgiven after a certain number of years of owning the home. Other programs serve as a grant, giving eligible homeowners money for a down payment with no payback required.

A good place to start looking for assistance you qualify for is with your state government — most states have first-time homebuyer programs that include various forms of down payment assistance to low- or moderate-income residents. There are also organizations like the CBC Mortgage Agency, which operates the Chenoa Fund, providing multiple down payment assistance programs to homebuyers.

A housing counselor, financial advisor or even your real estate agent can help you find a program to help you with your down payment.

[Read: The Guide to Earnest Money.]

Why You Should Save for More Than Your Down Payment

Before you calculate what you’ll need for a down payment based on every cent you have in savings, don’t forget that you’ll also need to cover closing costs

and have some financial cushion once you’re a homeowner.

Closing costs vary based on the cost of your home and where it’s located, but often add up to between 3% and 6% of the purchase price, according to Rocket Mortgage. Some down payment assistance programs will also cover closing costs, but that is a detail you should clarify in advance.

After you close on your home, you should have at least a couple thousand dollars in savings to serve as a rainy day fund — in case your air conditioning breaks on the hottest day of the year or you discover a leak in your roof.

While you save up for these additional costs to purchase a home, don’t go overboard to try to reach your goal faster. “Save an amount of money each month that’s within your comfort zone,” Adams says. You may opt to forego takeout meals for the foreseeable future to save more, for example, but eating instant ramen for months on end to drastically cut grocery costs is unnecessary.

More from U.S. News

The Guide to Escalation Clauses in Real Estate

How Long Does It Take to Buy a House?

2021’s Top First-Time Homebuyer Programs in Maryland

How Much Down Payment Do You Need for a House? originally appeared on usnews.com

Update 06/01/23: This story was published at an earlier date and has been updated with new information.

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