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Coming up with enough cash for a down payment to buy a house can be the single biggest roadblock for prospective home buyers. But how much of a down payment do you really need? That depends on the type of loan, your lender and your priorities.
What is a down payment?
A down payment is the cash you pay upfront to make a large purchase, such as a home. You use a loan to pay the rest of the purchase price over time. Down payments are usually shown as a percentage of the price. A 10% down payment on a $350,000 home would be $35,000.
When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The mortgage lender provides the rest of the money to buy the property.
Lenders require a down payment for most mortgages. However, some types of loans backed by the federal government may not require down payments. (More on that below.)
Do you need to put 20% down on a house?
You may have heard that you need to make a 20% down payment on a home, but that's really just the threshold many lenders use for requiring mortgage insurance on a conventional loan. You don't have to make a 20% down payment to buy a house.
In 2021, the typical down payment for first-time home buyers was 7%, according to the National Association of Realtors. The typical down payment was 17% for repeat buyers.
Making a lower down payment can get you to your goal of homeownership more quickly. However, a higher down payment brings down the principal (and lifetime interest payments), which might cost you less overall. Weigh the pros and cons to decide what’s best for you.
Minimum down payment requirements
The minimum down payment required for a house varies depending on the type of mortgage you're planning to apply for:
0% down payment mortgages. Guaranteed by the U.S. Department of Veterans Affairs, VA loans usually do not require a down payment. VA loans are for current and veteran military service members and eligible surviving spouses. USDA loans, backed by the U.S. Department of Agriculture's Rural Development program, also have no down payment requirement. USDA loans are for rural and suburban home buyers who meet the program's income limits and other requirements.
As low as 3% down payment mortgages. Some conventional mortgages, such as HomeReady and Home Possible, require as little as 3% down, provided you meet certain income limits. Conventional loans are not backed by the government, but they follow the down payment guidelines set by the government-sponsored enterprises — or GSEs — Fannie Mae and Freddie Mac.
As low as 3.5% down payment mortgages. FHA loans, which are backed by the Federal Housing Administration, require as little as 3.5% down if you have a credit score that's at least 580. If you have a credit score that's between 500 and 579, FHA loans require a 10% down payment.
With low- or no-down-payment loans, you pay for the guarantee through fees or mortgage insurance, depending on the program.
Benefits of a larger down payment
Saving enough money for a substantial down payment takes time, so a zero- or low-down-payment requirement may speed up your ability to buy a home. But making a larger down payment has advantages, which include:
A better mortgage interest rate. Lenders may shave a few fractions of a percentage point off of your interest rate if you make a larger down payment. When you borrow less of the home's price, there's less risk for lenders, and they tend to reward this with more favorable terms.
More equity in your home right away. Your home equity is your home's value minus the amount you owe on your mortgage. In other words, it's the extent to which your home is an asset rather than a debt. More equity means more wealth.
A lower monthly mortgage payment. Borrowing less of your home's price lowers your principal, which also means you'll pay less interest over the life of the loan.
Lower upfront and ongoing fees. Low- or no-down-payment government-backed mortgage programs reduce lenders' risk by guaranteeing a portion of the loans. If a borrower defaults on one of these loans, the associated government agency will reimburse the lender. In order to offset some of that cost, these loans can come with significant one-time costs, like the VA funding fee, or added ongoing costs like FHA mortgage insurance.
How much should you put down on a house?
The right down payment for you depends on your goals and financial situation. While there are plenty of pluses with a larger down payment, putting down too much could leave you strapped for cash after you move in.
Conventional mortgages usually require you to pay for private mortgage insurance if you put down less than 20%. Once you start making mortgage payments, you can ask to cancel PMI after you have over 20% equity in your home.
Try out some different scenarios to help you better understand how changing the size of your down payment can affect other costs.
Other considerations to determine your down payment
Your mortgage payment is just one piece of your overall household budget. With that in mind, here are some other factors to consider when planning for the size of your down payment:
Keep some savings in the bank. Avoid using your entire savings for a down payment. You could end up "house poor," spending too much of your income servicing your mortgage, or depleting your emergency fund.
Don’t forget about closing costs. It's also important to make sure you have enough cash on hand to cover closing costs, which are usually 2-5% of the home's purchase price.
Plan for the ongoing costs of homeownership. Leaving a cushion for home maintenance and repairs, as well as potential emergencies, is a good idea even if you're purchasing a move-in-ready home. In all, you want to be sure your down payment leaves you with enough room to cover all the costs of buying a house — and furnishing it once you've moved in.
» MORE FOR CANADIAN READERS: How much is the down payment for a house?