How Much Do You Need for a Down Payment on a House?
Updated March 25, 2026 · 11 min read
If you have ever been told you need 20% down to buy a house, you are not alone — and you have been given outdated advice. The 20% down payment is one of the most persistent myths in real estate, and it stops thousands of people from exploring homeownership years before they need to.
The reality: The average first-time buyer in the United States puts down between 6% and 8%. Millions of buyers close with 3.5% down, and some programs require zero down payment at all. Your down payment matters, but it does not have to be the mountain most people imagine.
Let's walk through exactly how much you actually need, how the amount affects your loan, and where to find help if your savings are not quite there yet.
The 20% Down Payment Myth
The idea that you need 20% down dates back to a time before modern mortgage insurance existed. Lenders wanted that cushion to protect themselves against default. Today, programs like FHA, VA, and USDA loans — along with private mortgage insurance — have made lower down payments not just possible, but standard.
According to the National Association of Realtors, the median down payment for first-time buyers has hovered around 6% to 8% for the past several years. For repeat buyers, it is higher — around 17% — but that is often because they are rolling equity from a previous sale.
On a $350,000 home, 20% down would mean saving $70,000. At 6% down, you need $21,000. That is a $49,000 difference — and for many buyers, the difference between waiting another five years and buying now.
Minimum Down Payment by Loan Type
The minimum down payment you need depends primarily on the type of mortgage you choose. Here is how the major loan programs compare:
| Loan Type | Minimum Down Payment | Credit Score Needed | Best For |
|---|---|---|---|
| Conventional | 3–5% | 620+ | Buyers with good credit who want to avoid FHA mortgage insurance |
| FHA | 3.5% (580+ score) or 10% (500–579) | 500+ | First-time buyers or those with lower credit scores |
| VA | 0% | No official minimum (most lenders want 620) | Eligible veterans, active-duty service members, and surviving spouses |
| USDA | 0% | 640 (guideline) | Buyers in eligible rural and suburban areas |
Conventional loans at 3% down are available through programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible, both designed for lower-income buyers. If you qualify for a VA or USDA loan, a zero-down purchase is genuinely on the table.
How Your Down Payment Affects Your Loan
The size of your down payment touches almost every part of your mortgage — your monthly payment, your interest rate, and whether you pay for mortgage insurance.
Private Mortgage Insurance (PMI)
If you put down less than 20% on a conventional loan, your lender will require private mortgage insurance, or PMI. This protects the lender — not you — in case you default.
- Typical cost: PMI runs between 0.5% and 1.5% of the original loan amount per year, depending on your credit score and down payment size. On a $330,000 loan, that translates to roughly $135 to $410 per month.
- When it drops off: For conventional loans, you can request PMI removal once you reach 20% equity. Your lender is required to automatically cancel it once you hit 22% equity.
- FHA is different: FHA loans charge a mortgage insurance premium (MIP) that lasts for the life of the loan if you put down less than 10%. If you put down 10% or more, MIP drops off after 11 years.
Interest Rate Impact
A larger down payment signals lower risk to the lender, which can translate to a slightly better interest rate. The difference is typically modest — a buyer putting 20% down might see a rate 0.125% to 0.25% lower than someone putting 5% down — but over 30 years, even small rate differences compound.
Monthly Payment Comparison
Here is what the numbers look like on a $350,000 home at a 6.75% interest rate:
| Down Payment | Amount Down | Loan Amount | Est. Monthly (P&I + PMI) |
|---|---|---|---|
| 3% | $10,500 | $339,500 | ~$2,440 |
| 5% | $17,500 | $332,500 | ~$2,370 |
| 10% | $35,000 | $315,000 | ~$2,180 |
| 20% | $70,000 | $280,000 | ~$1,816 |
The difference between 3% and 20% down is roughly $624 per month. But remember — the buyer who puts 3% down enters the market with $10,500 instead of $70,000, and they start building equity now rather than renting for years while saving.
Down Payment Assistance Programs
If saving for a down payment feels overwhelming, know that there are more than 2,000 down payment assistance (DPA) programs available across the country. Many go unused simply because buyers do not know they exist.
State and Local Programs
Nearly every state has a housing finance agency that offers DPA to qualifying buyers, often first-time buyers below certain income thresholds. These programs typically come as grants (free money), forgivable loans (forgiven after a set number of years in the home), or low-interest second mortgages. The HUD local homebuying page is a solid starting point for finding programs in your area.
Employer Programs
Some employers — particularly hospitals, universities, and large corporations — offer down payment assistance or homebuyer benefits as part of their compensation packages. It is worth checking with your HR department before assuming you are on your own.
Gift Money Rules
Family members can gift you money for a down payment, and each loan type has its own rules around this:
- FHA loans: Allow 100% of the down payment to come from a gift. The donor needs to provide a gift letter confirming the money is not a loan.
- Conventional loans: Gift funds are allowed, but if your down payment is below 20%, the lender may require that at least a portion comes from your own savings (rules vary by lender and program).
- VA and USDA loans: Gift funds are permitted with proper documentation.
Nonprofit Grants
Organizations like Habitat for Humanity, the National Homebuyers Fund, and local community development nonprofits offer grants and forgivable loans. These often target specific communities, professions (teachers, first responders), or income levels.
How to Save for a Down Payment
Saving for a down payment is less about willpower and more about systems. The buyers who successfully save are the ones who automate the process and make it hard to spend the money on other things.
- Open a dedicated savings account. Keep your house fund separate from your checking account. Out of sight, out of easy reach. A high-yield savings account earning 4%+ APY means your money grows while it sits.
- Automate your transfers. Set up a recurring transfer on payday — even $200 per paycheck adds up to $5,200 a year. Treat it like a bill you cannot skip.
- Audit your expenses. Subscriptions you forgot about, dining out habits, impulse purchases — most people find $200 to $400 in monthly savings when they look closely.
- Direct side income to the fund. Freelance work, selling items you no longer need, tax refunds, bonuses — route all of it directly into the house fund.
- Adopt the “house fund” mindset. Every financial decision gets filtered through one question: does this move me closer to or further from my house? That single lens is surprisingly effective.
HomeIQ Academy's readiness tools can help you track your progress and figure out exactly how much you need to save for the type of home you are targeting.
Should You Put Down More Than the Minimum?
If you have extra savings, you might wonder whether a bigger down payment is the smarter move. Like most financial decisions, it depends on your situation.
Pros of a Larger Down Payment
- Lower monthly mortgage payment
- No PMI if you reach 20%
- More equity from day one, which protects you if home values dip
- Potentially better interest rate
- Stronger offer in competitive markets — sellers prefer buyers with more skin in the game
Cons of a Larger Down Payment
- Less cash on hand for emergencies, repairs, and moving costs
- Opportunity cost — money locked in your house cannot be invested elsewhere
- You may deplete reserves that lenders also want to see (most want 2–6 months of payments in reserve)
- Delays your purchase — spending two more years saving for 20% means two more years of renting and missing out on equity growth
A good rule of thumb: put down enough to get comfortable monthly payments, but do not drain your savings to zero. Having 3 to 6 months of expenses in reserve after closing is more important than an extra percentage point on your down payment.
Where to Keep Your Down Payment Savings
This is straightforward but critically important: your down payment money should be in a high-yield savings account, not invested in the stock market.
Stocks can lose 20% or more in a single downturn. If you are planning to buy in the next one to three years, you cannot afford that kind of volatility. A high-yield savings account at an FDIC-insured bank currently earns around 4% to 5% APY with zero risk to your principal.
Other reasonable options include money market accounts and short-term certificates of deposit (CDs), though CDs lock your money for a set term. Avoid anything that fluctuates in value.
The CFPB's homeownership savings tools can help you build a realistic savings plan.
Don't Forget About Closing Costs
Your down payment is not the only cash you need at the closing table. Closing costs — which cover lender fees, title insurance, appraisal, and more — typically run 2% to 5% of the purchase price. On a $350,000 home, that is an additional $7,000 to $17,500.
We break this down in detail in our guide on what closing costs are and how to prepare for them. Factor these into your savings target from the beginning so there are no surprises.
Frequently Asked Questions
Can I use retirement funds for a down payment?
Yes, but proceed carefully. You can withdraw up to $10,000 from a traditional IRA penalty-free for a first-time home purchase (the income tax still applies). Roth IRA contributions (not earnings) can be withdrawn at any time without penalty. Some 401(k) plans allow hardship withdrawals or loans, but borrowing from your retirement should be a last resort — the long-term cost of lost compounding growth is significant.
Do I need the full down payment ready when I make an offer?
Not the full amount, but you do need earnest money — typically 1% to 3% of the purchase price — deposited shortly after your offer is accepted. The rest of your down payment is due at closing, which is usually 30 to 45 days later. This gives you a small window, but your lender will verify your funds during underwriting, so the money should be accessible and documented.
What about closing costs on top of the down payment?
Closing costs are separate from your down payment and typically range from 2% to 5% of the purchase price. Some buyers negotiate seller concessions (where the seller covers a portion of closing costs), and some loan programs allow you to roll closing costs into the loan. Plan for both when setting your savings target — our closing costs guide explains this in detail.
Is it better to put 20% down or invest the difference?
It depends on your risk tolerance, the cost of PMI, and current investment returns. If PMI costs you $150 per month and you could earn more than that by investing the difference, the math may favor a smaller down payment. But math and peace of mind are two different things — some buyers simply sleep better with no PMI and a lower payment. There is no universally right answer.
Your Next Step
Not sure how much you can afford or what loan type fits your situation? Start your free HomeIQ Academy assessment and get a personalized picture of your homebuying readiness.
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