The down payment is the cash you pay upfront when buying a home. It reduces the amount you borrow and signals to the lender that you have skin in the game. Conventional wisdom says 20% down, but many buyers put down far less.
The right down payment balances a lower monthly payment against keeping enough cash for closing costs, emergencies, and other financial goals like retirement savings.
Conventional loans: 3% to 20%+
Conventional mortgages are available with as little as 3% down for first-time buyers (programs like Fannie Mae HomeReady or Freddie Mac Home Possible). Standard conventional loans typically require 5% down.
Below 20% down, lenders require PMI (private mortgage insurance). PMI costs 0.5–1.5% of the loan amount annually, $167–$500/month on a $400,000 loan. PMI drops off once you reach 20% equity.
Putting 20% down avoids PMI and gives you immediate equity cushion. On a $400,000 home, that is $80,000, a significant cash commitment that may delay your purchase by years.
FHA, VA, and USDA loans
FHA loans allow 3.5% down with a credit score of 580+. They carry mortgage insurance premiums (MIP) for the life of the loan if you put down less than 10%. FHA is popular with first-time buyers who lack a large down payment.
VA loans offer 0% down for eligible veterans and active-duty service members with no monthly PMI. USDA loans offer 0% down in qualifying rural areas. Both have eligibility and property location requirements.
Government-backed loans have loan limits and property standards. A conventional loan may be cheaper long-term if you have strong credit and 10–20% down.
Closing costs beyond the down payment
Closing costs typically run 2–5% of the purchase price. On a $400,000 home, expect $8,000–$20,000 for appraisal, title insurance, lender fees, prepaid taxes, and escrow setup.
Sellers sometimes contribute to closing costs (seller concessions), especially in buyer-friendly markets. Lender credits can offset closing costs in exchange for a slightly higher rate.
Budget down payment plus closing costs plus a post-closing emergency fund. Draining savings to zero at closing is risky, homeownership comes with immediate expenses.
Strategies to save for a down payment
Automate transfers to a dedicated high-yield savings account. Treat down payment savings like a non-negotiable bill.
Gift funds from family are allowed on most loan types with proper documentation (gift letter). Some programs offer down payment assistance grants for first-time buyers.
Weigh speed of homeownership against opportunity cost. Saving $80,000 for 20% down over four years means four years of rent and four years of not building equity, but also four years of investment growth on that cash if the market cooperates.
Model different down payment scenarios
Use the mortgage calculator to compare 3%, 10%, and 20% down payments on the same home price. See how PMI, monthly payment, and total interest change.
Run the rent vs. buy calculator to see whether saving longer for a larger down payment changes the buy-vs-rent outcome for your timeline.