![Better](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fe2da67fb77e4423989a8b49ac50cb0aa?{"fit":"thumb","width":100})
A down payment is the portion of a home's purchase price that you pay upfront, out of pocket. It's the part of the home's price that is not financed by your mortgage.
If you buy a $400,000 home and put down $40,000, your down payment is 10% and your mortgage covers the remaining $360,000.
Your down payment size is a big piece of your home buying puzzle. It affects your monthly payment and loan eligibility in several ways.
...in as little as 3 minutes — no credit impact
How a down payment works
When you finance a home with a mortgage loan, you and your lender are splitting the purchase price. Your down payment is your share, paid upfront. Your mortgage covers the rest, and you repay it over time with interest.
But that's not the end of the story. Along with determining the size of your loan, the down payment also:
- Influences interest rate: Bigger down payments can help lower interest rates with some loan types.
- Helps decide loan type: Different loan types require different minimum down payments.
- Sets mortgage insurance fees: Combined with loan type, down payment sizes influence the amount you'll pay in mortgage insurance each month. Putting 20% down on a conventional loan eliminates mortgage insurance.
- Changes DTI math: A bigger down payment could lower your monthly payment enough to fit within debt-to-income ratio (DTI) rules for the loan.
- Affects home equity decisions: Putting down more money means you have more home equity to work with from the start.
As you can see, the down payment is intertwined with the overall mortgage experience. Generally, bigger down payments can open up more options, but this isn't always true for all borrowers.
Minimum down payment by loan type
Meeting a loan's minimum down payment is step one to homebuying for many borrowers. Here are the official minimums by loan type:
| Loan type | Minimum down payment | Notes |
|---|---|---|
| Conventional | 3% | PMI required until 20% equity |
| FHA | 3.5% | Requires 580+ credit score; MIP applies regardless of down payment |
| VA | 0% | For eligible veterans, active-duty service members, and surviving spouses; no PMI |
| USDA | 0% | For eligible rural and suburban properties; income limits apply |
| Jumbo | 10–20% | Varies by lender and loan size; stricter qualification standards |
One important note: meeting the minimum down payment amount doesn't guarantee loan approval. You'd also need to meet other rules, such as credit score and DTI thresholds and meeting the loan's property type requirements.
Also, with conventional loans, the loan's minimum may not be your minimum. For example, if you have a lower credit score or a higher debt-to-income ratio, the lender may increase the down payment needed for loan approval.
Many conventional borrowers in this situation turn to FHA loans, which allow 3.5% down even with credit scores as low as 580.
How down payment size affects your rate
Buyers think in terms of down payment sizes. Lenders look at the same equation from the opposite perspective, which is called loan-to-value ratio, or LTV.
A 10% down payment loan is a 90% LTV loan.
| Down payment | % down | Loan amount | LTV |
|---|---|---|---|
| $12,000 | 3% | $388,000 | 97% |
| $20,000 | 5% | $380,000 | 95% |
| $40,000 | 10% | $360,000 | 90% |
| $80,000 | 20% | $320,000 | 80% |
Generally, lower LTVs allow for lower mortgage rates on conventional loans because lower LTVs equate to lower lender risk. For example, when a lender issues $320,000 loan for a $400,000 home, they face less risk than issuing a $388,000 loan for a $400,000 home.
Government-backed loans like FHA, VA, and USDA loans can insulate borrowers from some of this risk, potentially making these loan types more affordable for buyers with smaller down payments. But there's no one-size-fits-all answer to the loan type question.
A pre-approval from a lender can help you see how your personal finances affect loan type and down payment needs.
...in as little as 3 minutes — no credit impact
PMI — what it is and when it applies
Private mortgage insurance, or PMI, is required on conventional loans with LTVs above 80%. PMI protects the lender from losing money on a higher-risk loan, but the borrower pays for this coverage through a monthly fee that's added to the mortgage payment.
It's natural to want to avoid extra fees, but PMI isn't all bad. It allows lenders to approve loans even when the borrower can't afford 20% down. And PMI isn't permanent. This fee expires when the loan's balance reaches 80% of the home's value.
PMI applies only to conventional loans. Government-backed loans charge their own forms of mortgage insurance.
- VA loans charge an upfront mortgage insurance fee called the Funding Fee but no monthly charges.
- FHA and USDA loans charge an upfront mortgage insurance fee along with monthly fees.
Mortgage insurance can seem complex and overwhelming. Learn more about how it works here.
Where can your down payment money come from?
Down payment cash can come from a variety of sources:
Personal savings. Most lenders want to see the funds in your account for at least 60 days (called seasoning) to confirm you didn't borrow the down payment money from someone else.
Gift funds. Family members can contribute to your down payment. Rules vary by loan type: conventional loans allow partial gifts; FHA and VA loans allow the entire down payment to be gifted. The donor typically needs to provide a gift letter confirming the funds are not a loan.
Down payment assistance programs. Many state and local governments offer grants or forgivable loans specifically to help buyers cover down payments and sometimes closing costs. Eligibility varies by income, location, and first-time buyer status. Down payment assistance covers the main program types and how to find what is available in your area.
Proceeds from selling your current home. If you are an existing homeowner, the equity from your sale can go directly toward your next down payment.
Liquidating investments. Taxable brokerage accounts, stocks, and bonds can be cashed out and used as a down payment. Be aware of any capital gains tax implications before doing so.
What cannot be used for down payment money? Borrowed funds, including personal loans, credit card advances, or informal loans from family, generally cannot be used as a down payment. Lenders verify the source of your funds precisely to screen out borrowed money disguised as savings.
How much down payment should you put down?
There is no right answer to this question. The best down payment for you depends on your savings, your cash flow needs, and how long you plan to stay in the home. Here is a framework:
Put down less if:
- Putting more down would leave you without emergency savings or reserves
- You need cash to cover closing costs (typically 2–5% of the loan amount)
- You qualify for a program that makes a low down payment advantageous (VA, USDA, first-time buyer assistance)
- You expect home values to rise and plan to build equity through appreciation
Put down more if:
- You have enough savings remaining after the down payment for reserves and closing costs
- Eliminating PMI from day one is a priority
- You are on a tight DTI margin and a lower loan amount helps your ability to qualify for the loan
For a deeper dive into the numbers at different purchase prices, see Better's guide on how much down payment for a house.
...in as little as 3 minutes — no credit impact
FAQs about mortgage down payments
What is a down payment on a house and why do you need one?
A down payment is the upfront, out-of-pocket portion of a home's purchase price, the amount you pay that is not covered by your mortgage. Lenders require it because it reduces their risk: a buyer with skin in the game is less likely to default.
How much of a down payment do I need to buy a house?
This depends on your loan type. Conventional loans can start as low as 3% down. FHA loans require at least 3.5% with a 580+ credit score. VA and USDA loans allow 0% down for qualifying borrowers. Jumbo loans typically require 10–20%. Loans for investment properties often require more than 20%
Do I really need to put 20% down to buy a home?
No. Most first-time buyers put down far less. The right down payment depends on your savings, loan type, and financial situation, not a fixed rule.
Can I use gift money from my family for a down payment?
Yes, in most cases. FHA and VA loans allow the entire down payment to be gifted. Conventional loans allow partial or full gifts depending on the down payment amount and loan program. The donor must provide a signed gift letter confirming the money is a gift and not a loan.
Are there programs that can help me with my down payment?
Yes. Many state, county, and city programs offer grants, forgivable loans, or low-interest second mortgages to help buyers cover their down payment and sometimes closing costs. Eligibility typically depends on income, location, and whether you are a first-time buyer. Google "down payment assistance in my area" to learn more.
What is the difference between a down payment and closing costs?
A down payment is the portion of the home's purchase price you pay upfront. Closing costs are the fees paid to your lender and third parties to originate and close the loan, things like appraisal fees, title insurance, and origination charges. Both are due at closing, but they are separate amounts.
The bottom line
A down payment is the upfront share of the purchase price you bring to the table, and you have far more flexibility than the 20% myth suggests.
Conventional loans start at 3% down. FHA loans start at 3.5%. VA and USDA loans offer 0% for eligible borrowers. The right amount depends on your loan type, your savings, and what keeps you financially stable after closing.
If you are still building your down payment, programs exist to help. If you are ready to buy, getting pre-approved shows you exactly what you qualify for at your current savings level.
...in as little as 3 minutes — no credit impact