Whether you're a first-time homebuyer or you're an experienced homeowner looking for some new digs, you may be wondering how much you should put down on your home. Mortgage loan.
While a 20% down payment is a popular suggestion among financial experts, this is an unrealistic goal for many potential home buyers. Furthermore, down payment requirements and the impact of the down payment can vary depending on the type of mortgage loan you choose – if you're just starting out, you may want to see our breakdown of the different mortgage types in our Guide to current mortgage rates.
As you prepare to buy a home, here's what you should know about how much down payment you'll need to buy a home and what amount is right for your financial situation.
Is it required to pay 20% down payment?
With a median home sales price of $420,800, according to first-quarter 2024 data from Federal Reserve Bank of St. Louis (FRED), you'll need to save approximately $85,000 to come up with a 20% down payment, and that's in addition to the closing costs of your loan.
The main reason financial experts recommend a 20% down payment is because traditional mortgage lenders typically require it Private mortgage insurance (PMI) on loans with lower down payment amounts. PMI protects lenders if you default on your payments. It typically costs between $30 and $70 per month per $100,000 borrowed.
A larger down payment can also reduce your monthly payment amount and possibly help you qualify for a lower interest rate.
However, the minimum down payment requirement is usually well below 20%, and with government-backed loan programs, mortgage insurance and similar costs are not contingent on the down payment.
Minimum down payment requirements
If you're a first-time homebuyer, you may feel frustrated when you realize that it could take years to save up for a down payment for the type of home you want. Fortunately, some loan programs have lower down payment requirements than others, making homeownership more accessible.
Here are the minimum down payment ratios, for qualified applicants, that you can expect to meet for the most popular loan options:
| Loan program | Minimum down payment |
|---|---|
| Conventional loans | 3% |
| Jumbo loans | 10% |
| FHA Loans | 3.5% |
| VA Loans | 0% |
| USDA loans | 0% |
| Conventional loans | |
|---|---|
| 3% | |
| Jumbo loans | |
| 10% | |
| FHA loans | |
| 3.5% | |
| VA Loans | |
| 0% | |
| USDA loans | |
| 0% |
It's important to note that the 3% minimum down payment for conventional loans is primarily for first-time homebuyers. If you've owned a home within the past three years, the minimum is generally 5%.
Also beware that if you have a credit score of less than 580 (but not less than 500) and get an FHA home loan, you will be required to make a down payment of at least 10%.
Historical data for average home prices in the United States
If you're interested in how the average home sale price has risen over the decades, take a look at this chart from FRED:
What is the average down payment on a home?
In the first quarter of 2024, homebuyers paid an average of 13.6% of their home's purchase price, according to a report from Realtor.com — a median dollar value of $26,400. Here's how these numbers have changed over the past few years, according to the report:
| year | Average down payment percentage of the home's value | Average down payment amount |
|---|---|---|
| First quarter 2024 | 13.6% | $26,400 |
| First quarter 2023 | 13% | $24,100 |
| First quarter 2022 | 13.1% | $27,500 |
| First quarter 2021 | 11.7% | $19,700 |
| First quarter 2020 | 10.7% | $14,000 |
| First quarter 2024 | |
|---|---|
| 13.6% | |
| $26,400 | |
| First quarter 2023 | |
| 13% | |
| $24,100 | |
| First quarter 2022 | |
| 13.1% | |
| $27,500 | |
| First quarter 2021 | |
| 11.7% | |
| $19,700 | |
| First quarter 2020 | |
| 10.7% | |
| $14,000 |
What can you use as a down payment?
Lenders have strict rules about the money you use for a down payment, primarily to limit potential risks. For example, you can't use the proceeds from a personal loan or a credit card cash advance. However, you can use the following to make the down payment:
- Personal Savings: Any money you've set aside over time in a savings or investment account can be used as a down payment. If you're a first-time homebuyer, you may even be able to withdraw up to $10,000 from an individual retirement account without incurring a 10% early withdrawal penalty — although the withdrawal will be subject to income taxes.
- Sales proceeds from your current home: If you're selling your current home, you may be able to time it to use the proceeds to cover the down payment on your new home.
- Home ownership: If you don't plan to sell your current home, you can leverage your equity in the form of a home equity loan, home equity line of credit, or cash-out refinance loan, and use that money to finance your own business. Down payment on a second home.
- Friends and family: Lenders typically accept money given or lent by a family member or friend. This includes inheritances received from recently deceased loved ones.
- piggyback loan: A top-up loan is a second mortgage loan that you can use to increase the amount of your down payment. For example, you could deposit 10% in cash and borrow 10% using a piggyback loan to meet the 20% requirement to avoid PMI. The back-end loan may have a higher interest rate than your main mortgage.
No matter how you plan to make your down payment, it is important that you properly document the source of the funds you are using. Lenders will usually ask for bank statements and other documentation to ensure the funds qualify.
Learn more: How to calculate your home equity
Is it possible to get a mortgage without a down payment?
If you're having a hard time coming up with some money for a down payment, it's possible to buy a home with no down payment. Here's how to get a mortgage with no money down (if you qualify):
- VA Loans. If you are a qualifying member of the U.S. military community, you may be able to obtain a VA loan, which does not require a down payment.
- USDA Loans: Like VA loans, USDA loans do not require a down payment to get approved. You may qualify for a USDA loan if you are buying a home in a qualifying rural community and have a low to moderate income.
- Conventional loans: Although rare, some conventional lenders offer zero-down home loans to low-income first-time homebuyers.
“In some cases, this type of product is exactly what someone needs to get their foot in the door of their own piece of the American dream,” says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage.
How to get help with your down payment
If you're a first-time homebuyer, some lenders, community organizations, and government agencies offer this Down payment assistance Programs that can help you meet your minimum loan requirements. In some cases, these programs can also provide assistance with closing costs.
Down payment assistance can come in different forms, including grants, forgivable loans, low-interest loans, deferred payment loans, and special savings accounts that match your contributions.
If you're a first-time home buyer with a relatively low income, talk to a mortgage professional in your area to learn about potential assistance options. A housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD) may also be able to help you determine which programs you may be eligible for.
How much should you put on the house?
Every situation is different, so there is no universal answer to this question that will suit every potential homebuyer. To determine the right down payment amount for a home, it's important to evaluate your financial situation and goals and weigh the pros and cons of a larger down payment versus a smaller down payment.
Pros and cons of a larger down payment
While a larger down payment can reduce your monthly payment and interest rate — and on a conventional loan, it would likely eliminate PMI — it may take longer to save enough to meet your down payment goal.
Furthermore, tying up more money in your home leaves you with less savings for other needs.
“At the end of the day, you also have to think about transportation, decor, landscaping and other elements that come with home ownership, so it's always smart to make sure you have reserves,” says Alvarez of William Raveis Mortgage.
Pros and cons of a smaller down payment
On the flip side, a smaller down payment can get you a home more quickly and leave you with more savings for other financial needs and goals. However, a smaller down payment can be expensive in the long run.
“If a homebuyer doesn't have any skin in the game, it's much easier to walk away when times get tough,” says Lindsey Harn, a California-based real estate agent. As a result, the less money you invest toward your home, the higher the interest rate and monthly payment.
What's more, if real estate prices in your area decline, you run the risk of going underwater on your home, owing more than it's worth. This can limit your options if you want to sell your home in the near future.
Ready meals
When buying a home, the down payment is crucial in determining your loan costs. However, you don't necessarily need to follow the commonly quoted rule of thumb for putting down 20%, especially if you're applying for a government-backed loan rather than a traditional mortgage.
There are advantages and disadvantages to more or less holding off on buying a home, and it's important to consider them all carefully to determine what's best for your situation. But at the very least, we think first-time homebuyers who may have felt that 20% was unachievable or would drain their finances will find it encouraging that a down payment can be much lower — and that homeownership is more achievable than it might seem. in the beginning.
