How much down payment do you really need? It is probably less than 20%
The short answer
You do not need 20% down to buy a home. VA and USDA loans allow 0% down for eligible borrowers, many conventional programs allow 3% down for first-time buyers, and FHA loans require 3.5% with a credit score of 580 or higher. Putting less than 20% down on a conventional loan usually adds private mortgage insurance, which can be removed later.
Key numbers
- VA
- 0%
- USDA
- 0%
- Conventional
- 3% to 5%
- FHA
- 3.5% (580+ score)
- Jumbo
- Often 10% to 20%
The trade-off of a smaller down payment
Less down means a bigger loan, a higher monthly payment, and usually mortgage insurance. On a $400,000 home at 7%:
| Down payment | Loan | Principal and interest | Mortgage insurance? |
|---|---|---|---|
| 3.5% ($14,000) | $386,000 | About $2,568 | Yes |
| 10% ($40,000) | $360,000 | About $2,395 | Yes (conventional PMI is lower at 10%) |
| 20% ($80,000) | $320,000 | About $2,129 | No (conventional) |
Waiting years to save 20% can cost more than PMI if home prices rise in the meantime. But a larger down payment gives you a lower payment and more cushion if values dip.
Where down payment money can come from
- Savings and checking, documented with recent statements. Large unexplained deposits need a paper trail.
- Gifts from family, with a signed gift letter. Rules vary by loan type.
- Retirement accounts, through a 401(k) loan or certain IRA withdrawals. Understand taxes and penalties first.
- Down payment assistance from state housing finance agencies and local programs, as grants or forgivable or deferred second loans.
- Seller credits can cover closing costs, but not the down payment itself.
Do not forget closing costs
Plan on 2% to 5% of the loan amount on top of the down payment. What is in closing costs.
Common questions
Is it smart to put 20% down?
It avoids PMI and lowers your payment, but not if it empties your emergency fund. Keeping several months of expenses in savings after closing is usually wiser.
Can I buy a house with no money down?
Yes, with a VA loan if you are eligible, a USDA loan in an eligible area, or some assistance programs. You may still need money for closing costs unless the seller or a program covers them.