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Loading...Loading...A down payment is the money a home buyer puts down up front toward the purchase price. The rest of the money is borrowed from a lender in the form of a mortgage.
The down payment is the amount of money you pay up front when you buy a house. At first, it tells you what percentage of the property you own. Your mortgage will cover the rest. If you want to buy a $400,000 home, you need to put down $40,000. Your loan will pay for the other $360,000.
It makes sense, even though the questions about it are hard. What do you really need? Is that really necessary? What if you put down less? People at work often ask me these kinds of questions, and to be honest, the answers depend on the type of loan you have, your credit history, and your financial goals.
Buyers need to know that the down payment affects almost every part of the mortgage. It changes your interest rate, monthly payment, whether or not you have to pay mortgage insurance, and the amount of equity you have at the start. If you put down more money, the terms of the loan are usually better. A smaller one, on the other hand, can help you buy a home faster while still giving you money for emergencies and repairs.
Most people assume 20% is required. It’s not. According to the National Association of REALTORS®, the median down payment among all buyers was 19% in their most recent survey, but first-time home buyers put down a median of just 10%. Plenty of buyers close with 3% to 5% down and build equity from there.
When you apply for a mortgage, your lender evaluates how much risk they’re taking on. Your down payment is one of the biggest factors in that equation. The more you put down, the less the lender needs to loan you, and the more confident they feel about getting their money back if something goes wrong.
Here’s how the math plays out. Lenders use something called a loan-to-value ratio, or LTV, to measure their exposure. If you’re buying a $350,000 home and putting $35,000 down (10%), your LTV is 90%. The lender is financing 90% of the home’s value. If you put $70,000 down (20%), your LTV drops to 80%, and the lender’s risk decreases accordingly.
That LTV number drives several things. It determines whether you’ll need private mortgage insurance (PMI) on a conventional loan. It influences the interest rate your lender offers. And it sets your starting equity position. At AmeriSave, loan officers can walk you through how different down payment amounts change your specific monthly payment and total borrowing cost.
On closing day, you’ll bring your down payment along with your closing costs. The Consumer Financial Protection Bureau notes that closing costs typically range from 2% to 5% of the purchase price, separate from your down payment. So if you’re buying that $350,000 home with 10% down, plan on needing $35,000 for the down payment plus roughly $7,000 to $17,500 for closing costs. Your total cash needed at closing could be $42,000 to $52,500.
One thing to keep in mind: lenders want to see where your money came from. Bank statements, pay stubs, gift letters from family members if applicable. Don’t deposit a bunch of cash right before applying for a mortgage. Unexplained deposits create headaches during underwriting.
Your down payment also affects how much equity you start with from day one. Equity is the difference between what your home is worth and what you owe on the mortgage. If you buy a $350,000 home with $35,000 down, you immediately have roughly 10% equity. That cushion matters. If you need to sell the home in a few years, your equity covers the real estate agent commissions and closing costs on the sale side, so you’re not writing a check just to walk away. It’s something my colleagues in underwriting used to stress with every file they reviewed.
Not all mortgages treat down payments the same way. The minimum amount depends on the type of loan you’re using, and some programs let you buy a home with nothing down at all.
Conventional loans backed by Fannie Mae and Freddie Mac require a minimum of 3% down for a fixed-rate mortgage and 5% for an adjustable-rate mortgage. Programs like HomeReady and Home Possible are designed for home buyers with moderate incomes, and both allow that 3% minimum. The catch? If you put down less than 20%, you’ll pay PMI until your loan balance drops to 80% of the home’s original value. According to the Federal Housing Finance Agency, the conforming loan limit for most areas is $832,750 for a single-unit home. Anything above that gets into jumbo territory, where down payment requirements typically jump to 10% or more.
FHA loans are popular with first-time buyers because they’re more flexible on credit. With a credit score of 580 or higher, you can put down as little as 3.5%. If your score falls between 500 and 579, the minimum jumps to 10%. But FHA loans come with mortgage insurance premiums (MIP), both an upfront premium of 1.75% of the loan amount and an annual premium that gets added to your monthly payment. If your down payment is less than 10%, that annual MIP stays for the life of the loan.
For eligible veterans, active-duty service members, and certain surviving spouses, VA loans offer one of the best deals in the mortgage market: zero down payment required. There’s no PMI either. You will pay a VA funding fee, which ranges from 1.25% to 3.3% depending on your down payment and how many times you’ve used the benefit. But even with that fee, the total cost is often lower than what you’d pay in PMI on a conventional loan over several years.
USDA loans also come with no down payment requirement, though they’re limited to properties in eligible rural and suburban areas and have household income caps. There’s an upfront guarantee fee of 1% and an annual fee of 0.35% of the loan balance. For buyers who qualify and want to purchase in a USDA-eligible location, AmeriSave can help determine your eligibility and walk you through the process.
Numbers tell the story better than generalizations. Let’s look at a $400,000 home and compare three down payment scenarios on a 30-year conventional fixed-rate loan. We’ll use a 6.75% interest rate for the calculation.
Scenario one: 3% down. Your down payment is $12,000. You’re borrowing $388,000. At 6.75% over 30 years, your principal and interest payment comes to about $2,517 per month. Add PMI at roughly 0.7% of the loan amount ($226 monthly) plus property taxes and insurance, and your total payment could reach $3,100 to $3,200 per month.
Scenario two: 10% down. Your down payment is $40,000. You’re borrowing $360,000. Monthly principal and interest drops to about $2,335. PMI falls to roughly $155 per month because your LTV is lower. Total monthly payment might land around $2,840 to $2,940.
Scenario three: 20% down. Your down payment is $80,000. You’re borrowing $320,000. Monthly principal and interest is about $2,076. No PMI at all. Total monthly payment could be $2,420 to $2,520. That’s $600 to $700 less per month compared to the 3% down scenario.
Over 30 years, the difference in total interest between 3% down and 20% down on this example is over $90,000. That’s real money. But here’s the flip side: putting 20% down on a $400,000 home means you need $80,000 in cash. For many families, especially first-time buyers, that amount takes years to save. Sometimes getting into the home sooner with a smaller down payment makes more financial sense, particularly if home values in your area keep climbing.
Most buyers use personal savings, but that’s not the only option. According to the National Association of REALTORS®, 59% of first-time home buyers relied on personal savings for their down payment. Another 26% tapped financial assets like 401(k) accounts, IRAs, or stocks. And 22% received a gift or loan from family or friends.
Gift funds are allowed on most loan types, though lenders will require a gift letter confirming the money doesn’t need to be repaid. Repeat home buyers have another common source: equity from selling a previous home. More than half of repeat buyers in the same survey used sale proceeds to fund their next purchase.
Some retirement plans allow hardship withdrawals or loans for a first home purchase, and certain first-time buyer programs offer matched savings accounts where a government agency or nonprofit matches your contributions. Working with AmeriSave, you can explore which sources your specific loan program accepts and how to document them properly.
If saving for a down payment feels overwhelming, you’re not alone. And there’s help available. According to HUD, more than 2,000 down payment assistance programs operate across the country, offered through state and local housing finance agencies, nonprofits, and employer programs.
These programs come in a few forms. Grants are outright gifts you never pay back. Amounts typically range from $3,000 to $15,000, though some state programs offer more. Forgivable loans work like second mortgages with 0% interest. You live in the home for a set number of years, often five to ten, and the loan gets forgiven. Deferred-payment loans charge little or no interest and require no monthly payments until you sell, refinance, or reach the end of the loan term.
Eligibility rules vary by program. Some are limited to first-time buyers, others have income caps, and many are tied to specific geographic areas. The Consumer Financial Protection Bureau recommends contacting a HUD-certified housing counselor to learn about programs in your area. In Kentucky, where I’m based, the state housing corporation runs several programs that have helped plenty of families get into homes they thought were out of reach.
One thing people sometimes miss is that these programs can often be stacked with FHA or conventional loans. So you’re not choosing between a low down payment loan type and an assistance program. You can use both. A colleague mentioned recently that a family used a state grant alongside an FHA loan and closed with less than $2,000 out of pocket on a $250,000 home. That’s the kind of creative problem-solving that makes a real difference for families who feel stuck.
The 20% down payment has been drilled into people’s heads for decades. And sure, it has real advantages. You avoid PMI on conventional loans, you get a lower LTV, and you’ll likely qualify for a better interest rate. But treating 20% as a requirement? That keeps people renting longer than they need to.
Think about it this way. On a $400,000 home, 20% is $80,000. Even saving $1,500 a month, that takes nearly four and a half years. During that time, home values could increase, and you’d be paying rent instead of building equity. In my Master’s of Social Work (MSW) program, we study how financial stress affects families emotionally. The pressure of feeling like homeownership is always just out of reach takes a real toll.
Sometimes the smarter move is to buy with a smaller down payment and start building equity now. PMI isn’t permanent on conventional loans. Once you hit 20% equity through payments and appreciation, you can request its removal. And with home values trending upward in many markets, that 20% mark can come faster than expected.
The right down payment depends on your full financial picture. What are your other goals? Do you have an emergency fund? How stable is your income? AmeriSave’s team can run multiple scenarios to show you exactly how different down payment amounts affect your monthly budget and long-term costs.
Talk to your lender for real before you decide on a down payment amount. These are the most important questions.
Find out what the lowest down payment is for the loan programs you can get. Then ask what your interest rate and monthly payment will be if you put down more. The difference between 5% and 10% may not be as big as you think. Learn how much PMI will cost at different levels of down payment and when you can stop paying it.
Find out about programs that help with down payments. Not all lenders work with all programs, but a good one will know what's available in your area. Find out if your loan type allows gift funds and what paperwork you'll need. And ask how much money you'll need at closing, because the down payment is only one part of that amount.
I know these talks can be scary, so please understand. But your lender works with buyers no matter how much money they have. Any question is fine. The goal is to make sure that the down payment you choose works with your current budget and your future plans.
Your down payment is one of the most important financial choices you'll make when buying a home, but it doesn't have to stop you from owning one. A lot of buyers put down 3% to 10% of the total price, and there are programs that can help with that. The most important thing is to find a monthly payment that you can afford and still have enough money on hand for emergencies. AmeriSave can help you figure out how much house you can afford with different down payments. It only takes a few minutes to get prequalified. Begin with the numbers and let them help you make your choice.
There isn't one right answer, but most first-time buyers put down between 3% and 10%. The National Association of REALTORS®'s most recent Profile survey found that the median down payment for first-time home buyers was 10%. That's $35,000 on a house worth $350,000. With a 580 credit score, you can get an FHA loan that starts at 3.5%. With a program like HomeReady, you can get a conventional loan that starts at 3%. You can look into AmeriSave's FHA loan options or get prequalified to find out how much you need to put down.
Yes, if you meet the requirements for a VA loan or a USDA loan. Veterans, active-duty military, and some surviving spouses can get VA loans with no down payment and no PMI. You can get USDA loans for homes in certain rural and suburban areas with no money down, but there are income limits. You will still need some cash at the table for both programs because they both have closing costs. To get started, go to AmeriSave to see the current VA loan rates and eligibility requirements.
If your down payment is less than 20%, you will have to pay private mortgage insurance (PMI) every month on top of your regular loan payments. If you don't pay, it protects the lender, not you. PMI rates are usually between 0.3% and 1.5% of the original loan amount each year. That adds about $187 a month to a $320,000 loan with 0.7% PMI. You can ask for PMI to be canceled once your loan balance is 80% of the original value of the home. Find out more about how loan-to-value affects your costs at AmeriSave.
That depends on how much money you have. Putting down 20% gets rid of PMI and lowers your monthly payment, but it also takes a lot of money out of your pocket. If you have to use all of your emergency money to get to 20%, a smaller down payment might be better. Depending on your rate and PMI cost, the difference between 10% and 20% down on a $400,000 home can save you $150 to $250 a month. AmeriSave can show you the real trade-offs for your budget by running side-by-side comparisons.
You pay your down payment at closing, usually with a cashier's check or wire transfer. It goes directly toward the price of the home. From the first day, it is part of your equity in the property. This is different from closing costs, which are the fees that the lender charges, the cost of title insurance, the cost of an appraisal, and other costs related to the transaction. The CFPB says that closing costs are between 2% and 5% of the price of the home, plus your down payment. Check out AmeriSave's closing cost guide for a full breakdown.
Yes. Most loan programs let you use gift money from family members, and some even let you use gift money from your employer, a nonprofit, or the government. Your lender will need a gift letter that says the money doesn't have to be paid back. FHA, VA, conventional, and USDA loans all allow gift money, but the rules for documentation are a little different for each type of loan. The National Association of REALTORS® found that 22% of first-time buyers got a gift or loan from a family member. The prequalification process at AmeriSave can tell you which gift sources your loan program accepts.
Down payment help programs give buyers money in the form of grants, loans that don't have to be paid back, or loans that don't have to be paid back until later. HUD's resources list more than 2,000 programs across the country. Different programs have different eligibility requirements. Common ones are having a certain income level, being a first-time buyer, or buying in a certain area. Most grants are between $3,000 and $15,000. Others state programs give more. You can use these programs with FHA or regular loans. Visit AmeriSave to see if you qualify and to learn about any help programs that are available in your area.
Programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible offer conventional fixed-rate mortgages with a minimum down payment of 3%. You need to put down at least 5% for an adjustable-rate conventional loan. Most conventional loans require a credit score of at least 620, and higher scores often get you better rates. For a $350,000 home, 3% down is $10,500, and 5% down is $17,500. Use AmeriSave's mortgage calculator to see how different amounts change your payment.
It can. Lenders usually see borrowers with bigger down payments as less risky, which can mean a slightly lower interest rate. The change is most clear when you cross certain thresholds, like going from 5% to 10% down or from 15% to 20%. Freddie Mac says that even a quarter-point drop in your rate can save you thousands over the life of a 30-year loan. That being said, your credit score and debt-to-income ratio are also very important when it comes to setting rates. To see real numbers, look at AmeriSave's current rates.
It depends on how much you want to save and how much you can put aside each month. If you put down 5% ($17,500) on a $350,000 home, you can save $500 a month and reach your goal in about three years. For $1,000 a month, it will take just under a year and a half. If you want to grow your money faster, you can open a high-yield savings account. Down payment assistance programs can help you make up the difference. The National Association of REALTORS® says that high rent and student loan debt are the two biggest things that keep people from saving. Today is the day to start looking into your options at AmeriSave.
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