What Is The Minimum Down Payment You’ll Need To Buy A House?

What is the minimum down payment for a house? What percentage down payment for a house is the norm? Despite popular belief, the minimum down payment for a house isn’t 20%. And while a larger down payment may yield better terms, there are many loan programs available to help you become a homeowner with a lower down payment than you may think is required.

A down payment is the percentage of the home’s purchase price that you invest in the house and pay out of your own pocket at the closing. Your loan amount is the difference between the sales price and your down payment.

Each loan program has a minimum down payment requirement, but it’s best to save as much as possible when considering buying a house. The more money you invest in your house, the lower the amount you borrow. The lower your principal balance, the lower your monthly payment and the less interest you pay over the life of the loan. This keeps your total cost to buy a home lower.

A minimum down payment is the lowest amount of money you’re required to put down. Each type of home loan has different requirements for a minimum down payment on a house. Each government-insured loan, including FHA, VA and USDA loans, have down payment requirements set by the entity that guarantees them. In addition, lenders create their own down payment requirements for conventional loans, but most follow the same guidelines.

When buying a house, you may have many loan options. Understanding the requirements for a minimum down payment for a mortgage for each loan program can help you choose the right loan.

Conventional Loans

Conventional loans are underwritten and funded by a private lender and not insured by a government agency. Most conventional lenders require a 3% down payment for first-time buyers and 5% for subsequent home buyers. However, some lenders may require a larger down payment if you have a low credit score or a high debt-to-income ratio.

FHA Loans

FHA loans are government-backed loans good for borrowers with less-than-perfect credit or a high debt-to-income ratio. An FHA loan is the most common for borrowers who may not qualify for conventional financing.

Borrowers need at least a 580 credit score and a minimum down payment of 3.5% of the sale price. Some lenders may approve borrowers with a credit score of 500 – 579 but, typically, with a 10% down payment.

FHA loans have more lenient guidelines to help homeowners have a large enough down payment. For example, they allow gift funds from employers or unions to contribute to the down payment.

Jumbo Loans

Jumbo loans are loans that exceed conventional loan limits. In 2023, those limits are $715,000 in most of the country and $1,073,000 for high-cost areas like Alaska and Hawaii. The limits change annually, but any borrower that needs a higher loan amount must go through a private lender. Most jumbo loan lenders require a higher down payment than the traditional 3% - 5% down payment because they’re a larger investment for the lender.

The Rocket Mortgage^Ⓡ Jumbo Smart Loan is a good example. For a one-unit property, borrowers can get a loan up to $2 million with a down payment of 10.01%, up to $2.5 million with a minimum of 25% down, and up to $3 million with a minimum of 35% down.

Some loan programs don’t require a down payment, including two government-backed options – USDA and VA loans.

USDA Loans

USDA loans are for low- to moderate-income families who want to live in a designated rural area. The United States Department of Agriculture (USDA) doesn’t require that a borrower be a first-time homebuyer, but you must not own a home currently.

USDA loans don’t require a down payment and you may roll your closing costs into the loan. This means you may not have to bring any money to the closing table but can own a home. Our sister company Rocket Mortgage^® does not offer USDA loans at this time.

VA Loans

VA loans are a government-backed program for veterans, current military members and eligible surviving spouses. Like USDA loans, VA loans don’t require a down payment and borrowers can roll the closing costs into their loans.

Unlike USDA loans, borrowers can buy a home anywhere as long as it’s their primary residence and they qualify for the loan. For example, veterans and military members are required to have served enough time in the military and have an honorable discharge.

A minimum down payment may be enough for lenders if you have good credit that meets the minimum credit score required. Remember, too, there are other eligibility requirements.

Making the minimum down payment may not be enough if you have shaky credit, a lot of debt or if the seller has many offers. Sellers may choose the offer from a buyer investing more of their own money into the home.

Avoiding Private Mortgage Insurance (PMI)

The minimum down payment for conventional loans isn’t enough to avoid private mortgage insurance (PMI). Borrowers need at least 20% down on a home to avoid PMI altogether. However, if you make the minimum down payment for a conventional loan, you can eliminate PMI once you owe less than 80% of the home’s value. This means you have 20% home equity, which is what putting down 20% on the home would do.

Getting Your Offer Accepted

Home sellers prefer large down payments as opposed to smaller ones. This is because the more money a buyer can put down, the more likely they are to have their loan approved. In addition, the more secure a buyer’s financing is, the less risk there is to the seller that the buyer will back out. Therefore, sellers tend to choose buyers with higher down payments versus those with lower down payments.

Getting Your Mortgage Loan Application Accepted

A larger down payment may also help your loan application. Lenders prefer borrowers who have more skin in the game. They want someone who takes the initiative to invest in their home because that borrower is more likely to do whatever is necessary to make their payments on time. With less money invested, lenders also see less of a risk.

Depending on the lender and loan, a larger down payment can be the difference between loan approval and denial when a borrower has a lower credit score or other risky qualifying factors.

Earnest money is money held in escrow during the mortgage application process, when you make an offer and sign a purchase agreement You might hear it called a good faith deposit too. It’s money borrowers put down ‘in good faith’ to show the sellers they’re serious about buying the home.

The earnest money sits in an escrow account that neither the buyer nor seller can touch until the transaction is complete or someone voids the contract. Typically, if a buyer bails on the contract without an allowed reason stated in the contract, the seller keeps the funds.

However, if a buyer completes the transaction, the earnest money can go toward the down payment or closing costs. In other words, it can be an upfront payment for the money a borrower puts down on the home. It’s like a deposit that gets deducted from the total money needed at closing for the down payment and closing costs.

Cash is a good motivator, especially in a highly competitive real estate market. Sellers often choose buyers with a larger down payment because of the higher chance of their financing getting approved.

A larger down payment can not only increase your chance of loan approval but can also increase your chances of getting lower interest rates. This will save you money over the loan's term, lowering the home’s total costs.

However, if you don’t have a larger down payment, it doesn’t mean you shouldn’t buy a home. Even if you have to pay PMI or a higher interest rate, a low down payment suffices if you need a stable housing situation. In addition, even with a low down payment, you’ll build home equity as you make your payments and can refinance your mortgage loan later to remove PMI or get better rates and terms.

The down payment is one piece of the puzzle when it comes to money needed to close on a home. You must also cover the closing costs and moving expenses and have money for the miscellaneous costs home buyers have.

Closing Costs

Closing costs are the fees to process and close your loan. They typically run between 3% and 6% of the home’s purchase price and include expenses such as underwriting, processing, real estate attorney fees, appraisal and title costs.

Moving Expenses

Unless you’re asking friends to help you move and using your own vehicle to transport your belongings, you’ll likely have moving expenses.

According to Moving.com, the average cost for a local move is $1,250, and a long-distance move is $4,890.

New Homeowner Incidentals

As a homeowner, you’re responsible for all the good and bad that come with owning a home. This includes the cost of owning a home, such as the unpleasant surprises when your A/C or water heater malfunctions or you need to replace a broken appliance.

Homeowners are also responsible for utilities, property taxes, insurance, Homeowners association (HOA) dues and furnishing a home. Every person has different expenses when moving into a new home, but always save more than you think you need to prepare for the unknown.

Why did I think I needed a 20% down payment?

The 20% down payment requirement is a common myth. While 20% down on a home eliminates the need for mortgage insurance, it’s not required. You can buy a home with a much lower down payment on a conventional or government-backed loan.

Can I get my earnest money back if I change my mind about a house?

The terms of your purchase agreement determine whether you get your earnest money back if you back out of a sales contract. Therefore, you’ll need contingencies in the contract to back out and keep your earnest money. Sometimes, buyers must back out of the sale even if it means losing their earnest money.

Is there down payment or closing cost help available to first-time home buyers?

Many programs are available to help first-time buyers with a down payment and closing costs. For example, Fannie Mae offers a closing cost credit of up to 3% of the home’s purchase price if they’re a first-time home buyer, uses the HomePath program and meets other requirements.

How much of a down payment do I need for a second home or a rental property?

Second homes and rental properties are riskier for lenders. If you have financial trouble, you’re more likely to pay your primary residence mortgage and stop paying the mortgage on a second home or rental property.

Most lenders require a larger down payment on any home other than your primary residence to decrease the risk of default.

Buying a home requires a good-sized down payment and money to close the loan, plus money for moving costs and other incidentals. Saving as much as possible to meet the minimum down payment for a house is the best way to ensure you get approved for the most attractive loan terms.

If you’re thinking about buying a home and have money saved, apply online for a mortgage to see what financing terms you can get.