What a conventional loan down payment is and how much lenders expect

A conventional loan down payment is the money you put toward the purchase price upfront, paid from your own funds before the lender gives you the rest. The lender then finances the remaining balance. Most conventional lenders want to see between 3% and 20% of the purchase price as your down payment, though the exact amount depends on your credit score, income, and the specific lender's rules.

The down payment serves two purposes: it reduces the amount the lender has to finance, and it signals to the lender that you have skin in the game. The larger your down payment, the less risk the lender takes on, which usually means better interest rates and terms for you. A smaller down payment (3% to 5%) is possible but typically comes with higher interest rates and the requirement to pay private mortgage insurance (PMI), an extra monthly cost that protects the lender if you stop paying.

Down payments are paid at closing — the final meeting where you sign all loan documents and the lender transfers the money to the seller. You do not pay this amount to the lender beforehand; you bring it (or have it wired) to the closing table.

Key Takeaways

  • Conventional loans typically require down payments between 3% and 20% of the home's purchase price, with 20% avoiding mortgage insurance altogether.
  • Down payments below 20% trigger private mortgage insurance (PMI), which adds $100 to $300+ per month to your mortgage payment depending on the loan size and your credit score.
  • Your credit score, debt-to-income ratio, and savings history all affect what down payment percentage a lender will offer you and what interest rate you will receive.
  • Down payment funds must come from your own savings, gifts from family members, or specific down payment information programs — not from borrowed money.
  • You pay the down payment at closing, not before, and it reduces the loan amount the lender finances.

How down payment size affects your monthly payment and interest rate

A larger down payment lowers your monthly mortgage payment because you are borrowing less money. On a $300,000 home, a 10% down payment ($30,000) means you borrow $270,000, while a 20% down payment ($60,000) means you borrow only $240,000. The difference in principal alone saves you roughly $25 per month over a 30-year loan, before accounting for interest.

The real savings come from interest rates and mortgage insurance. Lenders offer lower interest rates to borrowers with larger down payments because the lender's risk is lower. A 0.25% to 0.5% rate difference is common between a 5% down payment and a 20% down payment. On a $240,000 loan, that difference can mean $50 to $100+ per month in interest savings.

If your down payment is less than 20%, you will pay PMI. This insurance protects the lender, not you, and typically costs between 0.5% and 1.5% of the loan amount per year, divided into your monthly payment. On a $270,000 loan, PMI might add $112 to $338 per month. PMI can be removed once you have paid the loan down to 80% of the home's original purchase price, though this usually takes years.

Down payment requirements by credit score and lender type

Your credit score directly affects the minimum down payment a lender will accept. Borrowers with credit scores of 740 or higher typically may have access to for conventional loans with 3% down and the best available interest rates. Scores between 680 and 739 usually require 5% to 10% down. Scores below 680 may not may have access to for conventional loans at all; these borrowers often turn to FHA loans, which allow down payments as low as 3.5% but require mortgage insurance for the life of the loan.

Your debt-to-income ratio (the percentage of your monthly income that goes to debt payments) also matters. Lenders want this ratio to stay below 43% to 50%, depending on the lender and your credit profile. A larger down payment can sometimes offset a higher debt-to-income ratio because you are borrowing less, which lowers your monthly mortgage payment.

Different lenders have different rules. A bank may require 10% down, while a credit union or mortgage broker may accept 5%. Shopping with multiple lenders before you commit can reveal which ones offer the terms that work for your situation.

Where down payment money can come from

Down payment funds must come from sources you own or that are given to you. Your savings account, money market account, or certificates of deposit (CDs) all count. Lenders will ask to see bank statements from the past two months to verify the money is yours and has been there long enough that it is not a loan in disguise.

Gifts from family members are allowed, but the giver must sign a gift letter stating the money is a gift, not a loan you will repay. The lender needs this letter to confirm you are not taking on hidden debt. Some lenders limit how much of your down payment can come from gifts; others allow 100% of the down payment to be a gift.

Down payment information programs run by state and local governments, nonprofits, and some employers can provide grants or forgivable loans for down payments. These programs have income limits and other rules, and they vary widely by location. Your mortgage lender can tell you which programs they work with, or you can search your state's housing finance agency website.

Borrowed money — personal loans, credit card cash advances, or loans from friends — cannot be used for a down payment. Lenders see these as additional debt that increases your risk, and they will ask where the money came from during the underwriting process.

Saving for a down payment: realistic timelines

How long it takes to save a down payment depends on your income, expenses, and target amount. Saving $30,000 (a 10% down payment on a $300,000 home) takes roughly three to five years if you can set aside $500 to $800 per month. Saving $60,000 (20% down) typically takes five to ten years at the same rate.

Accelerating your savings means cutting expenses, increasing income, or both. Redirecting a tax refund, bonus, or inheritance to your down payment fund can shorten the timeline significantly. Some people use a high-yield savings account (currently offering 4% to 5% annual interest) to earn money on their down payment savings while they accumulate it.

Starting with a smaller down payment and buying sooner, then refinancing later when you have paid down the loan to 80% of the home's value, is another option. This approach lets you build home equity while you continue saving, though refinancing has its own costs and takes time to recoup.

What happens to your down payment at closing

At closing, your down payment is credited toward the purchase price. If the home costs $300,000 and you put down $60,000, the lender finances $240,000. The down payment does not go to the lender; it goes to the seller (or the seller's lender, if they have a mortgage to pay off). Your lender wires the remaining $240,000 directly to the closing agent, who distributes all funds according to the settlement statement.

You will receive a closing disclosure three business days before closing that shows the exact down payment amount, the loan amount, your interest rate, and all closing costs. Review this document carefully to make sure the numbers match what you and your lender agreed to. If something is wrong, contact your lender when ready — you have the right to delay closing to resolve discrepancies.

After closing, your down payment becomes your initial equity in the home. If the home appreciates in value or you pay down the loan, your equity grows. If the home loses value, your equity shrinks, which is why a larger down payment provides a cushion against a market downturn.

Frequently Asked Questions

Can I use a 401(k) or IRA withdrawal for a down payment?

Yes, but it usually costs you money. Withdrawals from a traditional 401(k) or IRA before age 59½ trigger a 10% early withdrawal penalty plus income taxes on the amount withdrawn. Some plans allow loans against your 401(k) balance instead, which avoids the penalty but requires you to repay the loan. An IRA withdrawal for a first-time home purchase (defined as not owning a home in the past two years) can avoid the 10% penalty but still incurs income tax. Speak with a tax professional before withdrawing retirement funds.

What if I do not have enough saved for the down payment the lender wants?

You have several options: look for a lender that accepts a smaller down payment, explore down payment information programs in your area, ask family members for a gift, or delay your purchase and save longer. Some employers and nonprofits also offer down payment help programs. Your mortgage broker can help you identify which lenders and programs match your situation.

Do I lose my down payment if the loan is denied?

No. Your down payment is held in escrow (a neutral account) until closing. If the loan is denied during underwriting, your down payment is returned to you. If you back out of the purchase for reasons not covered by your contract, you may lose the earnest money deposit (usually 1% to 3% of the purchase price), but that is separate from your down payment.

Will a larger down payment help me get a loan if my credit score is low?

Yes, sometimes. A down payment of 15% to 20% can offset a lower credit score and help you may have access to for a conventional loan when you might otherwise be denied. However, your interest rate will still be higher than someone with better credit, and some lenders have minimum credit score requirements that no down payment size can overcome. FHA loans are often a better option for borrowers with credit scores below 620.

Can I increase my down payment after I have already started the loan process?

Yes. Contact your lender and ask to increase your down payment amount. This lowers your loan amount, which can improve your interest rate and remove or reduce PMI. The lender will update your closing disclosure, and you will have three business days to review the new numbers before closing.