Coming up with a down payment can be the hardest part of buying a home—particularly for first-time buyers. Though it makes financial sense to go with a down payment of at least 20%, it’s not always possible to save that much once you realize you’re ready to buy a house and need a place to live.
The good news is that you can buy a house with less than 20% down though it is a good idea to put down as much as you can. Here are some of the considerations when thinking about how much of a down payment you may need for your dream house.
What is a down payment?
The down payment is the portion of the home’s purchase price that you pay upfront and is not financed through a mortgage. The down payment directly reduces the amount of money you need to borrow for the home purchase.
Mortgage lenders require a down payment as protection against a borrower defaulting. The larger your down payment, the less you have to borrow, the lower your payment may be, and the more likely you are to qualify for favorable terms.
How much down payment do you need for a house?
The size of your down payment is a percentage of the home price, rather than a dollar figure. So the price of the home dictates how much the down payment should be.
Ideally buyers would be able to put down at least 20% of the home price to avoid paying private mortgage insurance, but it’s not a requirement. With the median home price in 2023 at over $425,000, the average homebuyer would need $85,000 just for the down payment. That could put homeownership out of reach for many people.
What is the average down payment for a house?
In fact, many people do put down less than 20% when buying a home. The median down payment for all US homebuyers in 2023 was 14% of the purchase price, according to The National Association of Realtors. The average down payment varies a great deal depending on the age of the buyer, as well.
Older people are more likely to be repeat buyers and may have built up some equity in a previous home that can be put toward a bigger down payment, while younger buyers, on average, may come up with a smaller down payment.
| Age of homebuyer | Average home down payment |
|---|---|
| 24–32 | 8% |
| 33–42 | 11% |
| 43–57 | 10% |
| 58–67 | 20% |
| 68–76 | 21% |
| 77–97 | 27% |
Source: National Association of Realtors, 2023 NAR Profile of homebuyers and sellers
What’s the smallest amount you can use as a down payment for a house?
Under most circumstances, the down payment could be as little as 3% of the purchase price for a conventional loan—though for some types of loans, it could even be 0. But there’s a catch and a price tag: Mortgage lenders require that borrowers pay for private mortgage insurance (PMI) when their loan to value ratio is more than 80%—thus the suggestion to try to put down at least 20%.
PMI will compensate the lender if the borrower defaults on the loan. In most cases, borrowers pay for PMI as a monthly premium that is added to their mortgage payment.
Here are the lowest down payment requirements for several types of loans:
| Loan type | Guarantor | Eligibility requirements | Minimum down payment amount for qualified borrowers |
|---|---|---|---|
| Conventional | Not backed by the government or any other entity | Vary by lender | 3% |
| VA loans | Backed by the US Department of Veterans Affairs | Must be current or veteran military service member or surviving spouse | 0% |
| USDA loans | Backed by the US Department of Agriculture's Rural Development program | Rural homebuyers who meet the program’s income limits | 0% |
| FHA loans | Backed by the Federal Housing Administration | Must have a credit score of at least 580 | 3.5% |
Advantages of having a larger down payment
Putting down a large down payment can be helpful. Most significantly, it can reduce the cost you pay to borrow money over the life of the loan. Reducing the amount you need to borrow, even by a little bit, will lower the amount you pay in interest over time, and it can lower your monthly payments as well.
Bear in mind that the down payment is just one of many home-related expenses. You may want to budget up to 1% of the home’s value for annual maintenance costs. Plus insurance, taxes, and homeowners association fees, if there are any, can also add significantly to the monthly cost of owning a home.
Here are 4 more reasons it can make sense to put down at least 20% when buying a home.
1. Build equity more quickly
Equity refers to the difference between the amount you owe on your mortgage and how much your home is worth. If you owe $200,000 on your mortgage and your home is worth $300,000, then your equity is $100,000.
Homeowners can gain equity in one of 2 ways: Their home can increase in value, or they can pay down their mortgage principal through their monthly payments.
Mortgage payments are amortized, which means the size of the payment (on a fixed interest-rate loan) stays the same throughout the repayment period. The amount going toward interest gradually decreases while the amount going toward principal gradually increases. Each payment builds equity though and you will build equity faster if you start off with a larger down payment.
2. Qualify for a lower interest rate
In general, you may qualify for a better interest rate with a higher down payment, which reduces the overall cost of your mortgage over time. Even a .25% reduction in your interest rate could save you thousands of dollars over the life of your loan.
3. Avoid PMI
PMI can be a helpful tool to make homeownership a reality for anyone who might struggle to save a 20% down payment. But it is a monthly cost in addition to your mortgage, and unlike your mortgage payments, PMI payments will not help you build equity in your home.
In most cases, you can ask your lender to cancel PMI as soon as you have paid down the balance to below 80% of the home’s value—or if the home rises in value, though a new appraisal may be needed. Note that mortgage insurance on FHA loans is applied differently and can be more difficult to get rid of without refinancing.
4. Keep your debt-to-income ratio low
Your debt-to-income ratio (DTI) refers to the percentage of your monthly income that goes toward paying off debt. Since lenders look at DTI to make lending decisions, having a high DTI can keep you from qualifying for other loans in the future.
A higher down payment helps reduce your monthly mortgage payments, which can keep your DTI at a reasonable level.
When might it make sense to put down less than 20%?
Though there are a number of advantages to a 20% down payment, it sometimes makes sense to make a smaller down payment. Here are some reasons you might choose to put down less than 20%.
- Buy a house sooner: It takes time to save up a full 20% down payment. A smaller down payment can make homeownership a reality much sooner.
- Leave money available for closing costs and home maintenance: The fees and expenses associated with taking out a mortgage are called closing costs, and they can add up. It can also make sense to keep a part of your savings set aside for home repairs and maintenance.
- Maintain liquidity: Spending all your homebuying money on the down payment means tying up the cash for the foreseeable future.
Down payment assistance options
There are a number of government programs available to prospective homebuyers who are struggling to come up with a down payment. These down payment assistance programs may offer help in the form of forgivable grants and low-cost loans. The programs are designed to encourage homeownership and are generally restricted to first-time homebuyers.
Federal, state, and local governments all offer these programs. Here are some ways to find possible help near you.
- State-level programs: Search the US Department of Housing and Urban Development’s lists of local homebuying programs, organized by state. You can also check your state’s Housing Finance Agency for programs in your area.
- City and county-level programs: Your city, county, or municipality may also offer homebuying help at the local level. Check your local government website for more information.
If you have an IRA, you may be able to withdraw up to $10,000 for a first-time home purchase penalty-free and, if the account is a Roth IRA, possibly tax-free. For more, read: Early withdrawals from an IRA
How to figure out the right down payment amount for you
To figure out how much you should plan for a down payment, consider the following questions:
- What are the typical home prices in your area?
- How long will it take you to save a 20% down payment?
- When do you plan to buy a house?
- What size mortgage payment will comfortably fit in your budget?
- Will a down payment deplete your cash reserves and for how long?
With all of this in mind, you can determine what size down payment makes sense for you.