How much do you need for a down payment on a house?

  • The money you pay to buy a home is your down payment.
  • You might need as little as 3% upfront for a conventional mortgage.
  • Some government-backed mortgages, including VA and USDA loans, require no down payment.

the


deposit

is a well-known barrier to home ownership, but many potential buyers aren’t sure how much money they’ll need to cover this cost. According to Urban Institute39% of renters believe they will need to put down more than 20% to buy a home.

In reality, most buyers put less than that. Repeat homebuyers typically pay 17%, while first-time homebuyers pay just 7%. National Association of Realtors said.

A small down payment can make home ownership more feasible. How little can you deposit? It depends on the type of mortgage you get.

What is a down payment?

A down payment is the part of the price of a house that you pay with your own money. Your deposit is due at closing, when ownership of the home officially transfers to you.

For example, if you buy a house for $200,000, you might decide to put down a down payment of $20,000, which is 10% of the purchase price. You will then take out a mortgage for the remaining $180,000.

The down payment you will need for each type of mortgage

There are two basic types of mortgages: conventional and government backed.

A conventional mortgage is not insured or guaranteed by any government agency. A government guaranteed mortgage is guaranteed by a federal agency that compensates your lender if you fail to make the mortgage payments. The Federal Housing Administration, Department of Veterans Affairs, and Department of Agriculture are all government agencies that guarantee mortgages.

The minimum down payment required depends on whether you choose a conventional or government-guaranteed loan, and the sub-category of loan you obtain.

Conventional mortgages

There are two types of conventional mortgages:

  • Compliant loan. This is a mortgage that falls within the conforming loan limit set by the Federal Housing Finance Agency and meets the criteria for purchase by Fannie Mae or Freddie Mac. In 2022, the conforming loan limit is just under $650,000 in most parts of the United States. Down payments on these mortgages can be as low as 3% of the purchase price of the home, although your lender may require you to put down 5% or more if you are not a first-time buyer or low-income buyer. .
  • Non-compliant loan. When a mortgage exceeds the FHFA loan limits or does not meet the other criteria to be purchased by Fannie Mae or Freddie Mac, it is called a non-conforming mortgage. The most common type of nonconforming mortgage is the jumbo loan. Jumbo loans come with higher limits that vary by lender, sometimes up to $2 or $3 million. These mortgages generally require larger down payments, often 10% or 20%.

Government guaranteed mortgages

There are three types of government-backed mortgages:

  • FHA loan. This loan has more lenient conditions than a conventional mortgage. You’ll need a 3.5% down payment if you have a credit score of 580 or higher, and a 10% down payment with a score between 500 and 579.
  • VA loan. This mortgage is for military families. You don’t need a down payment for a VA loan.
  • USDA loan. This loan for low to middle income buyers in rural and suburban areas requires no down payment.

3 reasons to save for a bigger down payment

If you have the minimum down payment required to buy a home, you might decide you’re ready to get the ball rolling. But you might also want to consider saving even more for a down payment. Here are some benefits of paying more up front:

  • Lower interest rates. Lenders reward a higher down payment with a lower interest rate. It could save you tens of thousands of dollars over the years.
  • Lower monthly payments. When you take out a 30-year mortgage, for example, the amount you borrow is spread over 30 years in monthly installments. The less you borrow, the less money you will pay each month.
  • Less or no mortgage insurance. If you put 20% down on a conventional mortgage, you won’t have to pay private mortgage insurance (PMI). PMI typically costs between $30 and $70 per month for every $100,000 borrowed, based on Freddie Mac. Other types of mortgages require different types of insurance that cost a percentage of your loan, so the less you borrow, the less insurance you will pay.

Having a larger down payment can be very helpful if you are looking to save money in the long run. But buying early with a small down payment also has advantages. It just depends on what makes the most sense to you.

mortgage calculator

Use our free


mortgage calculator

to see how a larger or smaller down payment will affect your monthly payments.

mortgage calculator

$1,161
Your estimated monthly payment

  • pay one 25% a higher down payment would save you $8,916.08 on interest charges
  • Lower the interest rate by 1% would save you $51,562.03
  • Pay an extra fee $500 each month would reduce the term of the loan by 146 month

You’ll also see how the amount you deposit will affect your spending over the life of your mortgage.

About Matthew R. Dailey

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