How much down payment do I need to buy a house?
The down payment is the biggest upfront hurdle for most homebuyers. How much you put down affects your loan amount, monthly payment, interest rate, and whether you pay mortgage insurance. The answer is not the same for everyone: it depends on the loan type, the lender's requirements and your own finances.
- US minimums: 3% conventional, 3.5% FHA, 0% VA and USDA. At 20% there is no PMI
- PMI costs 0.5–1.5% of the loan a year, or $145–$438 a month on a $350,000 loan
- Total savings needed = down payment + closing costs (2–5%) + 3–6 month emergency reserve
- Most US states run down payment assistance programmes, so check your HFA before buying
- Putting down less than 20% is not automatically wrong: compare it with keeping the capital invested
- Use a high-yield savings account earning 4–5% for your down payment fund
Minimum down payment requirements by loan type (US)
Conventional loans (Fannie Mae/Freddie Mac): minimum 3% for first-time buyers, 5% for repeat buyers. With less than 20% down, you pay PMI (Private Mortgage Insurance). FHA loans: 3.5% down with a 580+ credit score, 10% with 500–579 credit score. FHA requires both upfront (1.75% of loan) and annual (0.55–1.05%) mortgage insurance premium regardless of down payment. VA loans (veterans and active military): 0% down payment, no PMI. USDA loans (rural areas): 0% down, income limits apply. Jumbo loans (above conforming limits): typically 10–20% required, often 20%+ for the best rates.
Why 20% is the traditional benchmark
The 20% down payment became the standard because it removes PMI, the private mortgage insurance that protects the lender, not you, if you stop paying. On a $350,000 loan, PMI typically costs 0.5–1.5% annually, or $145–$438/month. That is real money added to your payment that builds no equity. But 20% is not a requirement. It is the threshold that removes one specific cost. For many buyers it makes more sense to put down 10% and invest the other 10%, especially when house prices are rising and the return beats what PMI costs.
How the down payment affects your monthly payment
On a $400,000 home at 6.5% interest over 30 years. 3% down ($12,000): loan $388,000, payment $2,453 + PMI ~$194 = $2,647/month. 10% down ($40,000): loan $360,000, payment $2,275 + PMI ~$150 = $2,425/month. 20% down ($80,000): loan $320,000, payment $2,023, no PMI. The gap between 3% and 20% down is $624 a month, but it takes $68,000 more upfront. Breaking even: $68,000 ÷ $624/month savings = 109 months (over 9 years). If you can invest that extra $68,000 at 7% annually, the math often favors a smaller down payment.
Total savings needed: down payment plus closing costs
First-time buyers frequently calculate only the down payment and arrive at closing underfunded. On a $350,000 home with 10% down: down payment $35,000 + closing costs (3–4%): $10,500–$14,000 + emergency reserve (3–6 months expenses after purchase): $15,000–$25,000. Total recommended savings: $60,500–$74,000. If you are putting only 3% down, closing costs and the reserve may actually exceed your down payment. Know your full number before you start shopping.
Down payment assistance programs
Many first-time buyers are unaware of the programs available to reduce the cash needed upfront. In the US: state and local HFAs (Housing Finance Agencies) offer down payment assistance as grants or forgivable loans. FHA programs allow gift funds from family members for the entire down payment. Some employers offer homebuyer assistance programs. In the UK: guarantee schemes have at times allowed 5% deposits, and the Lifetime ISA adds a 25% government bonus on savings used for a first home. In Spain, state and regional guarantee programmes have allowed young buyers and families to finance 90–95%. These schemes open and close, so check which ones are running before you count on one.
How to save for a down payment faster
Set a specific target (down payment + closing costs + reserve) and a monthly savings rate. At $1,500/month saved, you reach $54,000 in 3 years. A high-yield savings account makes a real difference: at 4%, $50,000 earns $2,000 a year. Keep the down payment fund separate from your emergency fund, because mixing the two is how it gets spent. If you have investments, evaluate whether selling some makes sense: the math of paying 0.5% PMI on $350,000 ($1,750/year) vs. earning 7% on $70,000 invested ($4,900/year) often favors keeping the investment and paying PMI.
Frequently asked questions
What is the minimum down payment?
In the US, some loan programmes allow 0–3.5%. Conventional loans often ask for at least 3–5%. In Spain, banks usually finance up to 80% of the value.
Why is 20% the benchmark?
It avoids private mortgage insurance in the US and gets better terms from lenders in most countries.
What is PMI?
Private mortgage insurance, which US lenders require when the down payment is below 20%. It is removed once you reach enough equity.
Should I sell investments for the down payment?
Compare the cost of a smaller down payment with the expected return of your investments and your risk tolerance.