Saving up a down payment to buy a house may be the most visible barrier to the American dream of homeownership, especially if you’ve heard the rule that you need to put 20% down.
Considering that the median home price in the United States has been well above $400,000 since late 2021—and even topped $440,000 in 2022 before coming down a bit since then—a 20% down payment can easily be $80,000 or more. That kind of cash is something many would-be homebuyers don’t have just lying around. The good news is that you may be able to buy a home with as little as 3% down, or even no down payment, in certain circumstances.
How much your down payment should be depends on factors including whether you’re a first-time homebuyer, what types of mortgages you qualify for, how good your credit score is, and how competitive the housing market is in the area where you want to buy. Read on and we’ll break down the details.
Why the 20% down payment rule exists
The commonly quoted rule of thumb that you should put 20% down when buying a house largely has to do with private mortgage insurance. With a conventional loan—one from a private lender that’s not backed by a government program—you’ll typically need to pay for PMI if you put less than 20% down.
PMI can add roughly $30 to $70 per $100,000 borrowed to your monthly mortgage payment, according to a Freddie Mac estimate. For example, that would mean if your loan amount is $300,000, PMI might add an additional $90 to $210 onto your monthly bill.
Putting 20% down allows you to avoid PMI and save on your monthly payment. It also means you’ll enter homeownership with a greater amount of equity, which will be helpful if you later need to tap your home equity through a home equity loan or cash-out refi.
To sum up, there are clear benefits to putting 20% down if you can afford it. But, particularly if you’re a first-time homebuyer looking to make the jump from renting, don’t despair. The minimum down payment you can make will very likely be significantly less than 20%. And, if you are required to pay for PMI, you can ask your lender to remove it down the road when you reach 20% equity in your home.
Minimum down payment by mortgage type
The minimum down payment you must make depends on a few things—one of the most important being the type of mortgage you’re applying for. Also, note that in this section we’re addressing down payments on a home you’ll live in as your primary residence. There are different rules for second homes and investment properties.
Here are the minimum down payment percentages, for eligible applicants, that you can expect to have to meet for the most popular home loan options:
It’s important to note the 3% minimum down payment for conventional loans is for first-time homebuyers. If you’ve owned a home in the past three years, the minimum is generally 5%.
Also beware that if you have a credit score below 580 (but at least 500), while some lenders will still approve you for an FHA loan, you’ll be required to make a minimum 10% down payment.
If you’re not sure yet what type of mortgage you need, here’s a quick breakdown that may help you decide:
- Conventional loans are issued by private lenders—banks, credit unions, and online lenders—and are not insured by a government program. You’ll typically need a 620 credit score or higher. Note that a conventional loan will also often be a conforming loan, meaning it falls within the limits set by the Federal Housing Finance Agency (FHFA) and can be purchased by Fannie Mae or Freddie Mac after it’s originated.
- Jumbo loans are loans that exceed the FHFA conforming loan limits. Expect to make a down payment of at least 10%, and know that some lenders may require 20% down or even more. They also typically come with stricter requirements such as a higher credit score, more assets in the bank, and even multiple appraisals instead of just one.
- FHA loans are issued by private lenders and are insured by the Federal Housing administration. That reduces the risk to lenders and makes the loans accessible to consumers who might struggle to qualify for a conventional loan.
- VA loans are issued by private lenders and insured by the U.S. Department of Veterans Affairs. They’re available to military service members, veterans, and surviving spouses. If you qualify for a VA loan, that’s one of the rare cases where it’s possible to buy a home with no down payment required.
- USDA loans are for low- and moderate-income homebuyers purchasing properties in eligible rural areas. There are USDA Guaranteed Loans and USDA Direct Loans. The former are issued by private lenders and insured by the U.S. Department of Agriculture, while the latter are issued directly by the USDA itself. While USDA loans require no down payment, be aware the underwriting process may take longer in some cases than conventional loans.
Can you ever buy a home with no money down?
It is possible to buy a home with no down payment, mostly in cases where the buyer qualifies for a VA loan or a USDA loan as outlined above. But that’s not quite the same thing as buying a house with no money down. You’ll still need to pay out some upfront cash for closing costs regardless of what type of mortgage you get.
A good rule of thumb is to estimate that closing costs will run between 2% and 6% of the home’s sticker price. For example, on a $300,000 home, that could mean closing costs between $6,000 and $18,000.
A few of the common charges you may see in your closing costs include:
- Home inspection
- Appraisal fee
- Credit reporting fee
- Escrow funds (for property taxes, homeowners insurance, etc.)
- Closing attorney fee (if required in your state)
- Deed recording
- Notary fee
This is not an exhaustive list. And, it’s important to note that while most closing costs will be due on or just prior to closing day, you’ll likely have to cover some ahead of time—such as the inspection and the appraisal.
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Benefits of making a larger down payment
If you have the cash on hand, there’s no doubt a larger down payment can be beneficial in many situations.
For example, we plugged some numbers into Fannie Mae’s mortgage calculator to see how much of a difference in your monthly mortgage payment it might make to put 20% down vs. 5% down on a $300,000 home.
With the calculator set to a 30-year loan term and a 7% interest rate, putting 20% down results in an estimated monthly payment of $2,160, while that monthly payment jumps to $2,606 if you only put 5% down.
But your down payment isn’t the only thing impacting your monthly payment amount. Mortgage rates are a factor here too. Keeping the rest of the estimate the same, but dropping the rate to 6%, Fannie Mae’s calculator shows a $2,002 payment with 20% down and a $2,419 payment with 5% down.
Second home and investment property down payments
While you may be able to buy a home to live in as your primary residence with a minimum down payment ranging from 0% to 5% (depending on what loan types you qualify for), it’s a different story if you’re buying a second home or a property you intend to flip or rent out.
For a second home, you’ll typically need to make a minimum down payment of 10%, and it’s not unheard of for lenders to require 20% or even 25% down.
It’s a similar situation if you’re looking to become a landlord or start flipping houses. For an investment property, expect to make a minimum down payment of at least 15%, with some lenders asking for up to 25% down.
How much is the typical down payment?
Looking at 2024 data from the National Association of Realtors, the median down payment for all homebuyers was 18%. Breaking out just first-time homebuyers, the median drops to 9%. For just repeat buyers, the median down payment rises to 23%.
These stats reflect the highest median down payments for first-time homebuyers since 1997 and for repeat buyers since 2003, according to NAR.
The bulk of first-time buyers (69%) relied on savings for their down payment, according to NAR, but some needed help beyond what savings would cover—with 25% using loans or gifts from family and friends, 21% leveraging financial assets, and a record 7% high using money from inheritances.
Down payment assistance
Depending on your income and other factors, you might be eligible for down payment assistance. This may take the form of a loan, grant, savings match, or tax credit, depending on the specific program you qualify for.
In many cases, down payment assistance is available through states, though you can sometimes also find programs at the local government level or through nonprofits.
If you’re seeking down payment assistance, two good places to start your search are Fannie Mae’s down payment assistance tool and this list maintained by the U.S. Department of Housing and Urban Development of local homebuying programs.
The takeaway
There’s no denying there are some benefits that come with making a 20% down payment if you can swing it, such as avoiding the cost of PMI on a conventional loan. However, in an environment where home prices have been skyrocketing and consumers are struggling with the cost of everything from travel to groceries, putting 20% down isn’t feasible for everyone.
Luckily, the minimum down payment required for most mortgages is much lower than that. You may be able to get into your next home with as little as 5% down on a conventional mortgage, or 3% down if you’re a first-time homebuyer. If you qualify for a VA loan or USDA loan, it’s even possible to purchase a home with no down payment required.
Be aware that whatever amount you decide to set aside for your down payment, you’ll also be responsible for closing costs when you buy a home. These generally run between 2% to 6% of the property’s sticker price, so while the down payment gets most of the attention, it’s crucial to budget for closing costs too.