Down Payment: What It Is, How Much You Need, and How to Save for One
Last updated 05/07/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
A down payment is the upfront cash a buyer pays toward the purchase price of a property, with the lender financing the remainder through a mortgage.
Down payment size varies by loan type and lender but typically ranges from 3% to 20% of the home’s purchase price.
- Standard range: 3% to 20% of purchase price; conventional loans often require 20% to avoid private mortgage insurance (PMI).
- Loan type impact: FHA loans allow as little as 3.5% down; VA and USDA loans may require zero down.
- PMI factor: Down payments below 20% typically require PMI, which adds monthly costs until you build sufficient home equity.
- Strategic considerations: Larger down payments reduce monthly payments and total interest paid over the loan term, but tie up cash that could be invested elsewhere.
Compare Home Loans
Compare rates from multiple vetted lenders. Discover your lowest eligible rate.
What is a down payment?
A down payment is the cash you contribute at closing when purchasing a home. If a house costs $300,000 and you make a $60,000 down payment (20%), your lender finances the remaining $240,000 via a mortgage loan.
The down payment serves two purposes: (1) it represents your “skin in the game,” reducing the lender’s risk, and (2) it determines your loan-to-value ratio (LTV), which affects interest rates, PMI, and loan approval odds.
A larger down payment demonstrates financial commitment and stability, making lenders more willing to approve your application and offer better rates.
Down payment requirements by loan type
Different loan programs have different minimum down payment requirements:
- Conventional loans: Typically 3% to 20% down, though 20% is standard to avoid PMI.
- FHA loans: 3.5% minimum down payment; popular with first-time buyers and those with limited savings.
- VA loans: Often zero down payment for eligible veterans and active-duty service members.
- USDA loans: Zero down payment for rural property purchases meeting income and location requirements.
- Jumbo loans: Loans exceeding conforming limits often require 10–20% down due to higher principal amounts.
Choosing the right loan type depends on your eligibility, financial situation, and down payment capacity.
A first-time buyer with $15,000 saved might use an FHA loan to purchase a $350,000 home with only 3.5% down, whereas an experienced buyer with significant savings might opt for a conventional loan and 20% down to maximize savings on interest and insurance.
Private Mortgage Insurance (PMI) and the 20% threshold
When you put down less than 20%, lenders require Private Mortgage Insurance to protect themselves against default. PMI typically costs 0.5% to 1.5% of your loan amount annually, added to your monthly payment.
On a $240,000 loan with 1% PMI, you’re paying roughly $200 per month for insurance you don’t benefit from directly. This cost persists until you reach 20% home equity through a combination of principal paydown and home appreciation.
The 20% down payment threshold is significant because it eliminates PMI, saving tens of thousands over a 30-year mortgage. However, waiting years to save 20% down may mean missing favorable interest rates or delaying homeownership unnecessarily, which is why lower-down-payment options exist.
How to calculate your down payment
| Home Price | 3% Down | 5% Down | 10% Down | 20% Down |
|---|---|---|---|---|
| $200,000 | $6,000 | $10,000 | $20,000 | $40,000 |
| $300,000 | $9,000 | $15,000 | $30,000 | $60,000 |
| $400,000 | $12,000 | $20,000 | $40,000 | $80,000 |
| $500,000 | $15,000 | $25,000 | $50,000 | $100,000 |
To calculate your down payment, multiply the home’s purchase price by your down payment percentage. A $350,000 home with a 10% down payment equals $35,000; with 15% down, it’s $52,500. Most lenders allow you to pay more than the minimum, so if you have extra savings, putting down more reduces your loan amount and monthly payment.
Strategies for accumulating down payment funds
Saving for a down payment is the primary challenge for first-time buyers. Common strategies include automating monthly savings into a dedicated high-yield savings account, reducing discretionary spending, and prioritizing the goal above other financial objectives.
Some buyers tap other sources: family gifts (which lenders typically allow with documentation), liquidating investments, or cashing out retirement savings (though this carries tax penalties in most cases). Others use a Roth IRA first-time homebuyer exception, which allows withdrawing up to $10,000 in earnings penalty-free for down payment purposes.
According to the National Association of Realtors, the median down payment for first-time buyers hovers around 6-7%, while repeat buyers average closer to 15-20%. This reflects the genuine difficulty first-time buyers face in accumulating large sums.
Pro Tip
Don’t wait for the “perfect” 20% down payment if it will take years. A smaller down payment (5-10%) now may be smarter than waiting—you’ll build home equity through monthly payments and potential appreciation while potentially locking in favorable interest rates. Calculate the cost of PMI against the benefit of homeownership sooner, and factor in how long you plan to own the home.
Down payment and total mortgage cost
A larger down payment dramatically reduces your total interest paid. On a $300,000 home at 6.5% interest over 30 years, a $60,000 down payment (20%) versus a $9,000 down payment (3%) cuts your total interest costs by roughly $120,000 over the loan term.
However, this assumes the money saved in interest is your primary goal. If you’re considering a larger down payment, compare it against other uses for that capital: investing in index funds, paying down high-interest debt, or building an emergency fund. Sometimes deploying capital more flexibly outweighs the interest savings from a larger down payment.
The decision between a small down payment now versus waiting to save more requires weighing mortgage costs, PMI, opportunity cost of delayed homeownership, and your personal financial priorities.
Good to know: Closing costs (typically 2-5% of the purchase price) are separate from your down payment. Budget for both when planning your cash needs for purchase.
Related reading on home buying and financing
- Home Equity — How down payment, principal payments, and appreciation build ownership stake in your property.
- Mortgage Points — An alternative way to reduce your interest rate by paying upfront costs at closing.
- Refinancing — How to remove PMI or lower rates once you’ve built sufficient home equity.
- Debt-to-Income Ratio — Lenders use this metric to determine how much you can borrow, independent of down payment size.
Frequently asked questions
Can I borrow my down payment from someone else?
Lenders typically prohibit borrowing your down payment from another loan or credit source, as this increases your leverage and default risk. However, documented gifts from family members are generally allowed without repayment obligation.
When do I pay my down payment?
You pay the down payment at closing, which occurs after your offer is accepted, inspections pass, and your mortgage loan is approved. Earnest money (a smaller deposit) is typically paid earlier when making your offer.
Can I remove PMI after building equity?
Yes. Once you reach 20% equity through a combination of principal paydown and home appreciation, you can request PMI removal. For FHA loans, PMI removal follows different rules but is often possible once you’ve paid to 20% equity (or 10% for loans with less than 10% down).
What if I can’t afford the down payment right now?
Consider FHA loans (3.5% down), assistance programs for first-time buyers, or delaying purchase while saving. Some employers and nonprofits offer down payment assistance programs, especially for moderate-income buyers in high-cost areas.
Should I save for down payment or pay off debt first?
If you have high-interest debt (credit cards), prioritize that before saving for down payment. If debt is low-interest (student loans), you might save for down payment while managing debt payments, as home price appreciation could outpace debt interest costs.
Key takeaways
- Down payments range from 3% (FHA) to 20% (conventional), depending on loan type and lender requirements.
- Paying less than 20% down triggers PMI, which adds monthly costs until you build sufficient home equity.
- A larger down payment reduces monthly payments and total interest but ties up capital that could be used elsewhere.
- Down payment sources include savings, family gifts, and retirement account withdrawals (in specific circumstances).
- Don’t wait years for a perfect down payment if lower-down-payment options let you build equity sooner.
Your down payment is foundational to your mortgage and home purchase. Balancing affordability, PMI costs, and opportunity cost requires understanding your options and personal financial situation.
Ready to explore mortgage options? Compare mortgage lenders and down payment requirements at SuperMoney’s mortgage comparison tool. Check out the mortgage industry study to understand current market trends, rates, and buyer behavior in your region.
Table of Contents