How Much Should You Put Down on a House?
A down payment is a lump sum of cash paid upfront to buy a home, and aspiring homebuyers should put down enough to get a mortgage payment they can afford without spending all their savings. A down payment that’s too small could leave you with a home loan that stretches your budget. A large down payment could deplete your cash, leaving you without the funds for home maintenance or unexpected repairs.
Understanding how down payments work will help you determine how much you should put down on a house.
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How much do you have to put down on a house?
Homebuyers may confuse how much they should put down on a house with the minimum down payment requirements set by lenders. The table below offers a brief look at how much is required for each loan program.
| Loan program | Minimum down payment |
|---|---|
| Conventional loan | 3% |
| FHA loan | 3.5% with a 580+ credit score |
| FHA loan | 10% with a 500 to 579 credit score |
| VA loan | 0% |
| USDA loan | 0% |
How to decide on your down payment amount
Choosing the right down payment requires a basic understanding of the effect a down payment has on your monthly payment and savings. The key is to find a happy medium that leaves some wiggle room in your monthly budget for the unexpected without cleaning out your savings account. Homebuyers should consider the following when mulling over their choices:
Higher down payment considerations
- Your monthly payment will be lower. Besides the obvious benefit of a lower loan amount, a higher down payment may reduce other monthly costs like private mortgage insurance (PMI). Lenders waive PMI with at least a 20% down payment because they consider it less likely you’ll default on your mortgage.
- You’ll deplete more of your cash reserves. If you’re cleaning out your savings for your down payment, you need to consider how you’ll cover unexpected rainy-day homeownership expenses, like roof leaks or a water heater replacement.
- You’ll be able to afford a more expensive house. Lenders calculate your debt-to-income (DTI) ratio to ensure your house payment doesn’t use up too much of your monthly paycheck. A lower mortgage payment gives you a lower DTI ratio, which allows you to qualify for a higher-priced home.
Lower down payment considerations
- Your monthly payment will be higher. This is especially true for PMI costs; lenders base your PMI costs on your loan-to-value (LTV) ratio, which measures how much of your home’s value is borrowed. The higher the LTV ratio, the higher your monthly PMI payment will be.
- You’ll leave more money in the bank. Extra cash in the bank makes it less likely you’ll turn to credit cards to cover home repairs, and gives you a cushion if you have an unexpected job loss or other emergency.
- You’ll have more cash to invest. You can contribute extra cash to your 401(k) or other retirement savings with a better return.
It’s easier to see mortgage down payment math in action. The table below shows you the difference in your monthly payment and down payment cash required if you’re buying a $350,000 home with a 30-year conventional mortgage at a 5.5% rate.
| Down payment percentage | Down payment dollar amount | Monthly principal and interest | Monthly mortgage insurance |
|---|---|---|---|
| 3% | $10,500 | $1,927.64 | $176.82 |
| 3.5% | $12,250 | $1,951.00 | $243.00 |
| 5% | $17,500 | $1,887.90 | $173.18 |
| 10% | $35,000 | $1,788.54 | $164.06 |
| 15% | $52,500 | $1,689.17 | $154.95 |
| 20% | $70,000 | $1,589.81 | $0 |
Reviewing your down payment options
Using the numbers above, here are some things to consider:
- The lowest down payment leaves you with $59,500 more cash in the bank compared to the highest down payment.
- The lowest down payment costs you an extra $514.65 per month compared to the highest down payment.
- It will take you almost 10 years to break even on the extra money you spend for a higher down payment based on your monthly payment savings.
- You’ll spend an extra $6,175.80 every year on monthly mortgage payments for a low down payment versus the higher down payment option.
- You’ll have $70,000 of equity in your home with the highest down payment, making it easier to sell quickly.
- You’ll have less home equity with the lower down payment, which could mean you end up spending money to sell your home.
Pros and cons of a higher vs. a lower down payment
| Pros | Cons |
|---|---|
More cash left in the bank | Higher monthly payment |
Less starting equity in your home | Higher monthly mortgage insurance |
Higher tax deductibility with a larger loan amount | Higher mortgage closing costs |
| Pros | Cons |
|---|---|
Lower monthly payment | More cash depleted from savings |
Higher-priced homebuying potential | Less cash to cover unexpected expenses |
Lower or reduced mortgage insurance costs | Lower mortgage closing costs |
THINGS YOU SHOULD KNOW
When you buy a home, you’ll pay between 2% and 6% of your loan amount toward closing costs. You’ll shell out more to cover closing costs with a low down payment versus a high down payment because of the loan amount difference. The table below shows the difference in closing costs you’ll spend for a 3% down payment versus a 20% down payment on a $350,000 house.
| Down payment percentage | Loan amount | Closing cost range |
|---|---|---|
| 3% | $339,500 | $6,790 to $20,370 |
| 20% | $280,000 | $5,600 to $16,800 |
What’s the average down payment on a house?
Homebuyers tend to make more than the minimum lender-required down payment. The median down payment percentage made by homebuyers is 13%, according to a 2022 report from the National Association of Realtors (NAR). Younger buyers tend to put down less money than older buyers.
Here’s how the down payment medians rolled out based on age:
| Age range | Median percent down payment |
|---|---|
| 23 to 31 | 8% |
| 32 to 41 | 10% |
| 42 to 56 | 15% |
| 57 to 66 | 21% |
| 67 to 75 | 28% |
| 76 to 96 | 30% |
Should I make a 20% down payment on a house?
One persistent homebuyer myth is that you need to make a 20% down payment to buy a home.
The minimum qualifying requirements table above dispels that myth, but there are some very real benefits to making a 20% down payment on a conventional loan.
You should make a 20% down payment if:
- You have enough extra cash on hand to maintain your lifestyle and cover ongoing homeownership and maintenance expenses.
- You want to avoid the expense of PMI.
- You want the lowest possible mortgage rates.
Should I make a low down payment on a home?
With median home prices stretching above $403,000 and mortgage rates rising, many homebuyers are struggling to make a sizable down payment. Fortunately, there are low down payment options, including:
- Fannie Mae HomeReady® loans. The HomeReady loan program requires a minimum 3% down payment. Income limits apply, and you’ll need at least a 620 credit score to qualify.
- Freddie Mac Home Possible® loans. The Home Possible loan program also requires a minimum 3% down payment but requires a higher minimum credit score of 660.
- FHA loans. You can pay as little as 3.5% down with a loan backed by the Federal Housing Administration (FHA) — if you have at least a 580 credit score. The down payment minimum jumps to 10% if your credit score is between 500 and 579.
- VA loans. Military service members, veterans and eligible surviving spouses can get a loan guaranteed by the U.S. Department of Veterans Affairs (VA) with 0% down. While there’s no required minimum credit score, many lenders have a 620 score cutoff.
- USDA loans. The U.S. Department of Agriculture (USDA) offers 0% down payment home loans to eligible low- and moderate-income homebuyers in designated rural areas. There’s no USDA minimum credit score, but most lenders expect to see at least a 640 score.
- Down payment assistance. You may find that your state or county offers down payment assistance (DPA) programs to help cover your down payment and closing costs. Check with your local housing finance agency for more information.
Frequently asked questions
The more you put down, the lower your LTV ratio is. Lenders consider high LTV loans as riskier because they’re more likely to lose money if you default on the loan and they have to foreclose on your home.
If you take out a conventional loan and put down less than 20%, you’ll pay private mortgage insurance. This cost is added to your monthly mortgage payment and can be removed after you reach an 80% LTV ratio.
FHA loans require upfront and annual FHA mortgage insurance regardless of your down payment amount. You can get rid of it after 11 years if you put down at least 10% at your mortgage closing, or by refinancing into a conventional loan after you reach an 80% LTV ratio.
If you qualify for a VA or USDA loan, you won’t be required to make a down payment, in most cases. You can also avoid a down payment if you’re eligible for enough down payment assistance to cover the minimum required on the loan program you’re preapproved for.
You can avoid making monthly mortgage insurance payments if you:
- Pay your PMI upfront in a lump sum at closing
- Request lender-paid PMI in exchange for a higher interest rate
- Take out a piggyback loan for 10% of your down payment, while also contributing another 10% down payment yourself
You’ll also have closing costs, which can range between 2% to 6% of your loan amount. Additionally, you’ll want to budget for ongoing maintenance and unexpected repairs by stashing away three to six months’ worth of living expenses in an emergency fund.
In a competitive housing market, a down payment of 20% or more may tell the seller you’re strong financially, and help you negotiate the winning offer for a home purchase.
Try one or more of these tips to save extra cash toward your down payment before you buy a home:
- Stash cash from gifts and bonuses and set them aside in a down payment fund you don’t touch.
- Borrow money from a 401(k).
- Start a side hustle and set the money aside for your down payment.