A down payment is money you give to the seller or lender before you borrow the rest
When you buy a house, you do not borrow the entire purchase price. Instead, you pay part of it upfront — this is your down payment — and borrow the rest through a mortgage. The lender uses your down payment to reduce the amount they have to lend you. A larger down payment means a smaller loan, which changes how much you pay in interest over time and what your monthly payment will be.
Down payments range from 3% to 20% of the home's purchase price, depending on the type of loan you get and the lender's rules. On a $300,000 house, a 10% down payment would be $30,000, and you would borrow $270,000. On the same house with a 20% down payment, you would pay $60,000 upfront and borrow $240,000.
The down payment itself is separate from closing costs — the fees for inspections, appraisals, title work, and lender processing that you also pay at closing. Both come out of your pocket before you move in.
Key Takeaways
- Down payments typically range from 3% to 20% of the home price, and a larger down payment lowers your monthly mortgage payment and total interest paid.
- Loans with down payments below 20% usually require mortgage insurance, which adds to your monthly cost until you build enough equity.
- First-time homebuyer programs, gifts from family, and savings are common sources for down payment money.
- Your lender will verify where your down payment money came from and may require proof that it is genuinely yours, not borrowed.
How down payment size affects your monthly payment and total cost
A larger down payment reduces the amount you borrow, which lowers your monthly mortgage payment. It also means you pay less interest over the life of the loan, because interest is calculated on the loan amount. On a $300,000 house at a 7% interest rate over 30 years, a 10% down payment ($30,000) results in a monthly payment around $1,796, while a 20% down payment ($60,000) results in a monthly payment around $1,398 — a difference of nearly $400 per month.
The trade-off is that saving a larger down payment takes time. Many people buy with a smaller down payment and accept a higher monthly cost in order to buy sooner. This is a personal choice based on your savings, your timeline, and whether you can comfortably afford the higher payment.
Mortgage insurance and what it costs when you put down less than 20%
If your down payment is less than 20%, your lender will require private mortgage insurance, or PMI. This is insurance that protects the lender if you stop paying the mortgage. You pay the PMI premium as part of your monthly mortgage payment — it does not go toward paying down the house.
PMI typically costs between 0.5% and 1.5% of your loan amount per year, though the exact rate depends on your credit score, the size of your down payment, and the lender. On a $270,000 loan (10% down on a $300,000 house), PMI might add $100 to $300 per month. Once you have paid down the loan to 80% of the home's original value, you can request that PMI be removed — though you have to ask; lenders do not remove it automatically.
Some loans, like FHA loans, have mortgage insurance built in permanently, even after you reach 20% equity. VA loans and USDA loans do not require mortgage insurance at all, which is one reason these programs appeal to borrowers who may have access to.
Common sources for down payment money
Savings is the most straightforward source — money you have set aside in a bank account. Many people save for years specifically to accumulate a down payment.
Gifts from family members are also common. If a parent, grandparent, or other relative gives you money for a down payment, most lenders allow this. However, the lender will ask for a gift letter stating that the money is a gift, not a loan you have to repay. Without this letter, the lender may count the gift as debt you owe, which affects how much you can borrow.
First-time homebuyer programs in your state or city sometimes offer down payment help. These may be grants (money you do not repay), forgivable loans (loans that disappear if you stay in the house for a set number of years), or low-interest loans. Your state housing finance agency or local housing authority can tell you what programs exist where you live.
Retirement accounts like a 401(k) or IRA allow you to withdraw money early for a first-time home purchase, though this has tax consequences and you lose the growth that money would have earned. A financial advisor can help you understand whether this makes sense for your situation.
How lenders verify where your down payment came from
Before closing, your lender will ask for bank statements showing the money in your account. They want to see that the funds have been there for at least two months — this is called the seasoning requirement and it prevents you from borrowing money to make a down payment, which would increase your actual debt load without the lender knowing.
If you received a gift, you will need the gift letter plus bank statements from the person who gave you the money, showing the funds left their account. If you received an inheritance, you may need a copy of the will or estate documents. If you sold another property or received a bonus at work, you may need the sale documents or a letter from your employer.
This verification process takes time — usually one to two weeks — so plan to provide these documents early in the mortgage process, not at the last minute before closing.
Down payment options across different loan types
| Loan Type | Minimum Down Payment | Mortgage Insurance | Who Qualifies |
|---|---|---|---|
| Conventional | 3% to 5% | Required below 20% | Most borrowers with decent credit |
| FHA | 3.5% | Required for life of loan | First-time buyers, lower credit scores accepted |
| VA | 0% | None | Military members, veterans, surviving spouses |
| USDA | 0% | None | Rural property buyers meeting income limits |
Conventional loans are offered by banks and mortgage companies and typically require 3% to 5% down, with PMI required until you reach 20% equity. FHA loans, backed by the Federal Housing Administration, allow 3.5% down but charge mortgage insurance for the entire loan term, making them more expensive over time despite the lower upfront cost.
VA loans and USDA loans have no down payment requirement and no mortgage insurance, which makes them powerful tools for borrowers who may have access to. However, VA loans are only for military members and veterans, and USDA loans are only for homes in rural areas and borrowers meeting income limits.
Frequently Asked Questions
Can I borrow money for my down payment?
Most lenders do not allow you to borrow money for a down payment, because it increases your total debt without showing up on your credit report yet. If a lender discovers you borrowed the down payment, they may deny your mortgage. Gifts from family are allowed; borrowed money is not.
What happens if I do not have 20% saved?
You can buy with less — most lenders accept 3% to 5% down. You will pay mortgage insurance, which adds to your monthly cost, but you can remove it once you build 20% equity in the home. Many people buy this way and do not wait to save 20%.
Can I use a credit card to pay my down payment?
Technically yes, but lenders will see the credit card debt on your credit report and it will count against you when they calculate how much you can borrow. The lender may also require proof that you paid off the card before closing. Using savings or a gift is simpler.
Do I get the down payment back if I sell the house?
Your down payment becomes part of your equity in the home. When you sell, the sale price minus what you still owe on the mortgage is yours to keep. If you sell for more than you paid, your down payment plus your equity gains are yours. If you sell for less, you may owe money to the lender.
What if I inherit money right before buying — can I use it for a down payment?
Yes, but you will need to show the lender proof of the inheritance — usually a copy of the will, estate documents, or a bank statement showing the funds arrived. The lender may also require the money to be seasoned (in your account for two months) before closing, depending on their rules.