The typical down payment is between 10 and 20 percent of the home's purchase price, though you can put down as little as 3 percent with certain loan types.

A down payment is the money you give the seller at closing — the percentage of the total purchase price you pay upfront rather than borrow. If you buy a $300,000 house with a 20 percent down payment, you pay $60,000 in cash and borrow $240,000 through a mortgage. The lender then holds a claim against the house (called a lien) until you repay the loan.

The amount you put down affects your monthly payment, the interest rate you receive, and whether you pay an extra monthly fee called private mortgage insurance (PMI). Putting down more money upfront means borrowing less, which lowers your monthly payment and often gets you a better interest rate. Putting down less means a smaller upfront cost but higher monthly payments and usually PMI.

Key Takeaways

  • Down payments typically range from 3 to 20 percent of the home price, depending on the loan type and your credit profile.
  • Conventional loans usually require 5 to 20 percent down; FHA loans allow 3.5 percent; VA and USDA loans may require zero down if you meet the program requirements.
  • If you put down less than 20 percent on a conventional loan, you will pay PMI until you reach 20 percent equity in the home.
  • The down payment amount you choose affects both your monthly mortgage payment and the interest rate the lender offers you.
  • Lenders verify down payment funds come from your own savings, not from borrowed money, by asking for bank statements and sometimes a letter of explanation.

How down payment size changes by loan type

Conventional loans (mortgages not backed by a government agency) typically require 5 to 20 percent down. Lenders offer better interest rates at 15 or 20 percent down. At 10 percent down, you will pay PMI. At 5 percent down, PMI is higher and you may face stricter credit and income requirements.

FHA loans (backed by the Federal Housing Administration) allow 3.5 percent down if your credit score is 580 or higher. The trade-off is that FHA loans charge mortgage insurance premiums that are typically higher than PMI on conventional loans and are harder to remove — you may pay them for the life of the loan if you put down less than 10 percent.

VA loans (for military members, veterans, and some surviving spouses) often require zero down if you have a Certificate of may be able to access. USDA loans (for rural homebuyers who meet income limits) also frequently allow zero down. Both programs charge their own insurance or may provide fees instead of PMI.

What happens if you put down less than 20 percent

When you put down less than 20 percent on a conventional loan, the lender requires you to pay private mortgage insurance (PMI). This is a monthly fee added to your mortgage payment — typically 0.5 to 1.5 percent of the loan amount per year, divided into 12 monthly payments. PMI protects the lender if you stop paying, not you.

PMI stays on your loan until you reach 20 percent equity in the home. Equity builds as you pay down the principal and as the home appreciates. Once you hit 20 percent equity, you can request PMI removal. Some lenders remove it automatically; others require you to ask. If you put down 10 percent, it typically takes 8 to 12 years of on-time payments to reach 20 percent equity, assuming modest home appreciation.

FHA loans charge mortgage insurance premiums (MIP) instead of PMI. An upfront premium of 1.75 percent of the loan amount is rolled into your mortgage. An annual premium of 0.55 to 0.80 percent is added to your monthly payment. If you put down less than 10 percent on an FHA loan, you pay MIP for the life of the loan — it does not go away at 20 percent equity.

How lenders verify where your down payment comes from

Lenders require proof that your down payment comes from your own funds, not from borrowed money. They do this because a borrowed down payment increases your total debt and risk of default. During the underwriting process, you will provide bank statements (usually the last two months) showing the funds in your account.

If there is a large deposit that the lender does not recognize, they will ask for a letter of explanation — a brief written statement from you describing where the money came from. Common sources include savings, a bonus, an inheritance, or a gift from a family member. If the money is a gift, the lender will also ask the gift-giver to sign a gift letter stating the money is a gift, not a loan you must repay.

Some lenders allow you to use a 401(k) loan or withdrawal to fund your down payment, though this has tax and retirement planning consequences. Others allow you to borrow against a life insurance policy or use funds from a sale of another property. The key is that the lender must see a clear paper trail showing the money is yours to spend.

Down payment information programs and grants

Many states, counties, and nonprofits offer down payment information to first-time homebuyers or buyers in underserved areas. These programs may provide grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set period), or below-market-rate loans. The amount varies widely — some programs cover 3 to 5 percent of the purchase price; others cover up to 20 percent.

may be able to access typically depends on your income (usually capped at 80 to 120 percent of the area median income), credit score (often 620 or higher), and whether you are a first-time buyer. Some programs are limited to specific neighborhoods or property types. You can search for programs through your state housing finance agency, your local housing authority, or nonprofit organizations like NeighborWorks America.

If you receive down payment information, the lender must know about it. Some programs are structured as grants that do not count as debt; others are structured as loans that do. The lender will factor this into your debt-to-income ratio and may adjust your interest rate or require a larger down payment from your own funds.

The trade-off between down payment size and monthly payment

A larger down payment lowers your monthly mortgage payment because you are borrowing less money. On a $300,000 home at 7 percent interest over 30 years, a 10 percent down payment ($30,000) results in a monthly payment of roughly $1,595 (before taxes, insurance, and HOA fees). A 20 percent down payment ($60,000) results in a monthly payment of roughly $1,276. The difference is about $319 per month, or $3,828 per year.

However, a larger down payment also means less cash in your pocket after closing. If you put down 20 percent but have no emergency savings left, you may struggle if your roof leaks or your car breaks down. Many financial advisors suggest putting down 10 to 15 percent and keeping 3 to 6 months of expenses in savings, rather than stretching to 20 percent and leaving yourself vulnerable.

Interest rates also shift based on down payment size. A 20 percent down payment typically qualifies you for a lower rate than a 5 percent down payment. Over a 30-year loan, even a 0.25 percent difference in rate can add tens of thousands of dollars to the total cost. When comparing offers, ask the lender for rates at different down payment levels so you can see the full picture.

Frequently Asked Questions

Can I borrow my down payment from family or friends?

No. Lenders require proof that down payment funds are your own. If a family member gives you money as a gift, they must sign a gift letter stating it is not a loan. If it is a loan, the lender will count it as debt on your process, which may lower the amount you can borrow or increase your interest rate.

What if I do not have 20 percent saved?

Most buyers do not put down 20 percent. You can put down 3 to 10 percent on a conventional loan and pay PMI, or use an FHA loan with 3.5 percent down and pay mortgage insurance premiums. Down payment information programs may also help bridge the gap. The trade-off is a higher monthly payment and insurance costs, but you can buy sooner.

Does a larger down payment always mean a better interest rate?

Usually, yes. Lenders offer lower rates to borrowers with larger down payments because the loan is less risky. However, rates also depend on your credit score, income, debt, and current market conditions. Ask your lender for rate quotes at different down payment levels to compare.

When can I stop paying PMI?

On a conventional loan, you can request PMI removal once you reach 20 percent equity in the home. Some lenders remove it automatically; others require you to ask in writing. On an FHA loan with less than 10 percent down, you pay mortgage insurance for the life of the loan and cannot remove it.

What counts as a first-time homebuyer for down payment information?

Most programs define a first-time buyer as someone who has not owned a home in the past three years. Some programs are open to repeat buyers if they meet other criteria, such as income limits or buying in a specific area. Check the rules for the specific program you are considering.