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What Is The Minimum Down Payment For A House?

Carey Chesney5-Minute Read
October 20, 2021

It can be enticing to start searching for a lovely new home. Sure, looking at houses is the fun part, but it shouldn't be the first step. Start with the finances instead. I know, it’s way less fun, but much better than finding that perfect house and then not being able to afford it.

While you may have heard you need to put at least 20% down on a house, down payments can be much lower. Minimum amounts vary significantly depending on what type of loan you are using and your individual budget. Some loans may not even require any down payment to be made.

To help clarify the different loan requirements, we’ve put together this guide on the minimum down payment needed for each loan type.

What Is A Down Payment?

Before you start to calculate the minimum down payment you’ll be required to make on your loan, it’s important to have a good understanding as to what a down payment is and how it works. Making your down payment is an important step in the home buying process. This payment determines how much money you need to borrow and what your monthly payments will look like.

A down payment is a cash payment that you make upfront on a large purchase. For the purchase of a home, this payment is calculated based on a percentage of the sale price that is feasible for you to make.

For example: If you decide to buy a home for $300,000 and put 20% down, your down payment will be $60,000 and you’ll borrow $240,000 from your mortgage lender.

Down payments are usually required (though there are exceptions, such as with VA loans) to show mortgage lenders that you’re serious about becoming a homeowner, and that you’re able to repay the money they’ve loaned you.

Down Payment Basics

On closing day, you’ll give the seller your down payment. But that’s at the end of your home buying journey. Let’s back up and discuss how a down payment impacts your ability to really shop for a home in earnest. To show that you’re a serious buyer, you’ll want to get preapproved for a mortgage before making an offer on a house. As part of the preapproval process, the lender will require you to prove:
  • Your identity
  • Your income
  • Your employment
  • Your creditworthiness
  • Your assets
The last one is key because your assets are the funds you’ll use to make your down payment and cover other closing costs. So, having that money in the bank is absolutely critical to even qualify for most mortgages.Some lenders take it a step further and offer a Verified Approval. To receive a Verified Approval, you actually have your credit pulled and assets verified to get a much stronger preapproval to show potential buyers. It’s essentially saying you’re a safer bet.Let’s back up even further. You know you need a down payment. But, where does that money come from? If you’re lucky enough to have generous relatives who give you the money for your down payment, that’s great! But, if you’re like most folks, you’ll need to save up for this expense on your own. While it may seem daunting to amass a large sum of money, here are some things you can do to make it easier (or at least expedite the process):
  • See where you can find savings in your budget
  • Postpone large discretionary purchases and vacations
  • Pick up more hours at work, ask for a raise, or start a side hustle
  • Sell unneeded items
  • Make sure the money you save or earn actually goes toward your down payment fund
  • Automate deposits into a down payment fund so you can’t be tempted to spend the money elsewhere

The Minimum Down Payment Requirements For A Mortgage

You may have heard that 20% is the average down payment on a house. But, while that size down payment has its perks, most home buyers aren’t able to swing that much. In fact, according to a recent study by the National Association of REALTORS®, the average down payment for a first-time home buyer is 6%. Even most repeat home buyers aren’t hitting the 20% down payment – they average 16%. Minimum down payment requirements vary for each type of loan. Let’s take a closer look at a few of the loan types that might work for you, depending on your specific situation. We will cover what they are and what the minimum down payment is for each.

Conventional Loan

Conventional loans aren’t insured by a government agency. They’re offered through private lenders for the purpose of purchasing a home or refinancing an existing loan.

Because of this, conventional mortgages often have more stringent requirements for borrowers, such as higher credit scores and low debt-to-income ratios (DTI).

The minimum down payment you can make on a conventional loan is 3%.

FHA Loan

An FHA loan is a mortgage that’s insured by the government, specifically the Federal Housing Administration, or FHA. That means the government will protect the lender’s investment against default, which makes qualifying for the loan easier. The loan is a popular option for first-time home buyers and those with poor to moderate credit, due to its lower credit score and down payment requirements.

The minimum down payment you can make on a conventional loan is 3.5%.

VA Loan

VA loans are mortgages guaranteed to veterans, active service members and eligible spouses by the U.S. Department of Veterans Affairs (VA). Though the terms of these home loans are determined by the VA, the loans themselves are issued by private lenders. VA loans are typically easier to qualify for than conventional loans and don’t require a down payment unless the lender deems it necessary.

USDA Loan

A USDA loan helps low- to moderate-income families purchase a home in an eligible rural area. The loan is backed by the USDA, which allows lenders to offer lower rates and no down payment.

Jumbo Loan

A jumbo loan, or jumbo mortgage, is a mortgage loan that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Jumbo loans are called nonconforming loans because they do not conform to those limits.

Jumbo loans typically have much higher down payment requirements compared to conforming loans. It’s common to see lenders require 20% down on jumbo loans for single-family units.

Should You Put 20% Down?

How much to put down really depends on your specific situation, but here are some key points to consider while you home in on the right down payment amount specific to you.

Benefits Of A Larger Down Payment

Drawbacks Of A Larger Down Payment

  • It can be difficult to put more down.
  • Could put you at risk of not having extra money for home repairs or financial emergencies.
  • It takes longer to save this much money.
  • Could be at risk if your home’s value drops.

How Much Should You Put Down On A House?

It all depends on your personal financial situation, and the best way to find out is to use a mortgage calculator to see what you can afford, and then set a budget that reflects how much you’ll need to save for a house. In addition, be sure you don’t spend your entire savings and leave some money aside for emergencies, as they almost always arrive when you least expect it.

How To Save For A Down Payment

Saving for a down payment might seem daunting, but it doesn't have to be. Here are some quick tips to get you started.

  • Determine which loan type is right for you.
  • Start saving immediately.
  • Set a budget and a realistic timeline.
  • Cut unnecessary spending.
  • Open another savings account.
  • See if you qualify for any down payment assistance

The Bottom Line

Thinking about and saving for a down payment for a home doesn't need to be scary. With a plethora of loan types and other financial options available, there is likely a solution that is just right for you. Do your research, ask lots of questions, and make sure you are taking the steps of the home buying process in the right order. For any home buyer, the key is to determine how much house they can afford before they start the more exciting process of searching for their next home.

Carey Chesney

Carey Chesney brings a wealth of residential and commercial real estate experience to readers as a Realtor® and as a former Marketing Executive in the fields of Health Care, Finance and Wellness. Carey is based in Ann Arbor and attended the University of Wisconsin-Madison, where he majored in English, and Eastern Michigan University, where he recieved his Masters in Integrated Marketing & Communications.