How Much Is a Down Payment on a House?

Key Points:

• A down payment can affect how much you can qualify for in your mortgage.
• A larger down payment can help you secure better interest rates and avoid private mortgage insurance.
• The minimum down payment you'll need depends on the type of loan you choose.
• A smaller down payment can mean smaller monthly payments.

Buying a home is one of the most significant financial decisions you'll ever make, and the down payment is a critical component that can impact how much you'll pay each month, and the types of mortgage you can qualify for. Whether you're a first-time homebuyer or an experienced investor, understanding the intricacies of down payments is essential to planning for this step and preparing your home purchase. How much is a down payment on a house? That depends on various factors

What Is a House Down Payment?

A down payment is the initial lump sum of cash you pay when purchasing a home. It represents a portion of the total cost of the property, and the remaining balance is covered by a mortgage loan. The down payment serves as a way to demonstrate your financial commitment to the lender and reduces their risk by providing you with an immediate equity stake in the property. 

It's a common misconception that you need a 20% down payment to purchase a home. Now, with USDA and VA loans, you could even qualify for a mortgage with a 0% down payment and you could even get a conventional loan with a 3% down payment.

Keep in mind that even if you can qualify for a 0% down payment, choosing to make a larger down payment can help you secure a lower interest rate, larger loan amounts, or lower monthly mortgage payments. 

Do You Need a 20% Down Payment on a House?

While a 20% down payment was once considered the industry standard, it is no longer a strict requirement for most loan types. Many lenders offer mortgage programs with lower down payment options, making homeownership more accessible to a wider range of buyers.

Pros of Making a 20% Down Payment

• Avoid having to pay private mortgage insurance (PMI)
• Get lower monthly mortgage payments
• Potentially qualify for better interest rates
• Build equity in your home faster

Cons of Making a 20% Down Payment

• Requires a larger upfront investment
• Ties up more of your cash reserves
• This can delay homeownership for borrowers who need to save more

Minimum Down Payment Requirements Per Loan Type

The minimum down payment depends on the type of loan you're considering. Whether you qualify for the minimum down payment will also depend on other financial considerations such as credit score, proof of income, and total debt. Here is a comparison to help you prepare:

Conventional Loans

Conventional loans are not government-backed. These loans typically require a minimum down payment of 3% to 5% of the home's purchase price. These loans may have stricter credit scores and income requirements compared to government-backed options.

Conforming Loans

Conforming loans are conventional loans that conform to guidelines set by government-sponsored enterprises such as Fannie Mae and Freddie Mac. They typically require a minimum down payment of 3% to 5%. Requirements vary based on whether you choose a VA, FHA, or USDA loan. You can read more about those options below. 

Jumbo Loans 

Jumbo loans are used for loan amounts that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. For 2024, the limit for a conventional loan, before it becomes a jumbo loan, is $766,550 to $1,149,825, depending on location. These loans often require a larger down payment, typically ranging from 10% to 20% of the purchase price.

FHA Loans

FHA (Federal Housing Administration) loans are government-backed mortgages. You can get an FHA loan with a minimum down payment of 3.5% of the purchase price. FHA loans are only available in certain areas. These loans are designed to make homeownership more accessible to borrowers with lower credit scores or limited funds for a down payment. You can compare the best FHA lenders. 

VA and USDA loans

VA (U.S. Department of Veterans Affairs) loans and USDA (U.S. Department of Agriculture) loans are designed for specific borrowers and offer the unique benefit of requiring no down payment at all. VA loans are available to eligible military personnel and veterans, while USDA loans are for low- to moderate-income borrowers in eligible rural areas. You can learn more about VA requirements, or compare USDA vs. conventional loans. 

Should You Put a Larger Down Payment? 

A larger down payment can provide financial advantages, such as lower monthly payments and avoiding private mortgage insurance. However, it may not be the best choice for everyone, as it can put a financial strain on you if you don't have sufficient funds. Consider your overall financial situation, future goals, and the opportunity cost of tying up a significant amount of cash in your home before making a larger down payment. 

As an alternative to a larger down payment, you could make regular principal-only payments on your mortgage. This offers some of the advantages of a larger down payment, but you can spread the payment over a longer time as it meets your financial needs. 

Things to Consider When Determining Your Down Payment

Before deciding on your down payment, it's important to factor in closing costs, your total budget, and other mortgage options. Here's how these considerations can factor into your decision:

Evaluate Your Budget

Carefully assess your income, debts, and overall financial situation to determine how much you can realistically afford for a down payment without stretching yourself too thin. Look also at the total monthly mortgage payment including taxes, insurance, and lender fees. 

Consider Closing Costs and Other Fees

In addition to the down payment, you'll need to budget for closing costs, which can range from 2% to 5% of the home's purchase price. Carefully factor in these expenses when determining your down payment amount and the total available costs. 

Shop Around and Consider Your Options

Explore different loan programs and lenders to find the best fit for your financial situation. Some lenders may offer down payment assistance programs or flexible underwriting guidelines that could benefit you. In addition, some states offer down payment assistance or closing cost assistance for first-time homebuyers. 

Compare the Best Mortgage Lenders from Benzinga’s Top Home Loan Providers

Find some of the best mortgage lenders from Benzinga's trusted partners. Whether you're considering a jumbo mortgage or a USDA mortgage, these mortgage lenders can help you find the best offers.

Finding the Right Balance For Your Down Payment

When it comes to determining the right down payment amount for your home purchase, there is no one-size-fits-all solution. It's essential to strike a balance between your immediate financial goals and your long-term financial well-being. Carefully evaluate your budget and explore various loan options. Remember that even if a lender approves you for a higher mortgage, you don't need to take it. 

By weighing the potential benefits and drawbacks of different down payment amounts, you can make an informed decision that aligns with your unique circumstances and paves the way for a successful homeownership journey. You can also learn more about a 100% financing mortgage, how to save for a house or calculate the ideal down payment for an investment house. 

Frequently Asked Questions