What’s The Average Down Payment On A House For A First-Time Buyer?

Purchasing your first home is exciting, and at times, can be confusing. Today, we’re going to talk about a crucial part of the home buying process: the down payment. We’ll break down the basics of understanding and planning this process, so that you’ll be on your way to buying your first home with confidence.

You may be wondering what the average down payment on a house for first time home buyers looks like. Keep reading to find out.

What’s The Average Down Payment For A First-Time Home Buyer?

According to the National Association of REALTORS^® (NAR) in 2023, the average down payment for a first-time buyer was around 8%. Conversely, NAR found that more experienced buyers typically put down an average of 19%.

You may have heard home buyers need at least 20% down, but that’s a common myth. This myth started with lending rules stating that borrowers with less than 20% down payment need mortgage insurance. However, many (if not most) buyers don't follow this 20% rule, whether they’re first-time home buyers or experienced home buyers.

In reality, it's possible to buy a home with as little as 3% down or sometimes even no money down. While a lower down payment makes homeownership more accessible, you might have to pay for mortgage insurance until you reach a minimum of 20% equity in your home.

Minimum Down Payment For A House For A First-Time Buyer

A minimum down payment is the smallest amount of money required upfront when purchasing a home. Minimum down payment requirements differ between mortgage types.

For example, conventional loans require a minimum of 3% – 5% down, Federal Housing Administration (FHA) loans require a minimum of 3.5%, while Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans typically require no down payment.

How Much Should A First-Time Home Buyer Put Down On A House?

As a first-time home buyer, the choice of how much to put down is flexible. For example, you could qualify for a conventional loan with just a 3% down payment. However, this might require paying for private mortgage insurance, and your loan could come with a higher interest rate.

Conventional loans require you to buy private mortgage insurance (PMI) with down payments under 20%, and FHA loans require you to pay a mortgage insurance premium (MIP) for the life of the loan if you put less than 10% down. Unlike homeowners insurance, private mortgage insurance doesn't directly benefit you. Instead, PMI compensates the owners of your loan if you default on the loan.

If you’re able to, opting for a 20% down payment can be a strategic move to avoid mortgage insurance. This choice reduces your loan amount and results in a lower monthly mortgage payment and much less overall interest paid on your mortgage.

Pros And Cons Of A Lower Down Payment

Deciding on a down payment for your home is an important part of the home buying process. A lower down payment may provide immediate benefits like affordability and a faster path to homeownership, but there are factors to consider beyond the initial gains. Let’s look at some pros and cons of choosing a lower down payment, whether you're a first-time buyer or an experienced homeowner.

Pros

• You’ll have more money for closing costs and other home expenses after closing.
• You can buy a home sooner and start building up equity.
• You can maintain or build an emergency fund with the money you save.

Cons

• You’ll likely be charged a slightly higher interest rate.
• You’ll have a larger monthly payment.
• You’ll likely have to purchase mortgage insurance.

If you decide to put more money down for your new home, it’s important to save up for a down payment. There are many ways to do this, but just like a lot of other aspects of home buying, you’ll ultimately need to find what fits your specific needs.

How First-Time Home Buyers Can Lower Their Down Payment

The idea of a down payment, no matter the percentage, can be daunting. But there are ways you may be able to lower your down payment as a first-time home buyer.

Choose a mortgage with a low or no down payment requirement by considering different types of loans:

• Grants: Valuable assistance that doesn't require repayment, though it may create a second lien on your home in some cases.
• Forgivable loans: 0% interest loans that don't need repayment if you stay in your home for a specified number of years.
• Deferred-payment loans: 0% interest loans that are not forgivable but delay repayment until you move, sell, refinance or pay off your loan.
• Low-interest loans: Option to take out a second mortgage after finalizing the first, allowing payment of the down payment with two monthly mortgage payments.
• Matched savings program: Programs that match borrower deposits, provided by banks, government agencies or community organizations, up to a certain amount, for use toward your down payment.

Pursue Low Or No Down Payment Mortgages

There are several types of mortgages that offer lower down payments, and even some zero-down mortgages.

• Conventional loans: Offer down payments as low as 3% – 5%, depending on factors such as your credit score and qualifying income.
• FHA loans: Backed by the government, they require as little as 3.5% down, with a minimum credit score of 580.
• USDA loans: Available to low- and moderate-income families in qualifying rural areas, typically requiring little to no down payment.
• VA loans: Accessible to veterans, service members and qualified surviving spouses, usually requiring no money down.

Apply For Down Payment Assistance Programs

Down payment assistance programs can go a long way in helping first-time home buyers afford their down payment.

• Grants: Valuable assistance that doesn't require repayment, though it may create a second lien on your home in some cases.
• Forgivable loans: 0% interest loans that don't need repayment if you stay in your home for a specified number of years.
• Deferred-payment loans: 0% interest loans that delay repayment until you move, sell, refinance or pay down your loan but are not forgivable.
• Low-interest loans: Option to take out a second mortgage in tandem with the first, allowing payment of the down payment with two monthly mortgage payments.
• Matched savings program: Programs that match borrower deposits, provided by banks, government agencies or community organizations, up to a certain amount, for use toward your down payment.

Not everyone may qualify for these programs, so make sure to talk with your mortgage lender about your options and pay close attention to program requirements.

Put Gift Funds Toward A Down Payment

A down payment gift, or gift funds, refers to money given, often by a family member, to assist a home buyer in covering expenses like the mortgage down payment or closing costs.

To use gifted money, you must adhere to rules set by the lender and/or the government agency insuring the loan, if applicable. Smaller amounts may not require documentation. However, lenders typically require information on gift money exceeding half of a household's total monthly income.

FAQs On Average First-Time Home Buyer Down Payments

We’ve talked a lot about the basics of first-time home buyer down payments. Here are a few highlights to keep in mind.

How much should I put down on my first house?

Buying a home isn't a one-size-fits-all situation. Your down payment varies based on factors including your credit score and savings.

While putting down 20% is advisable to avoid mortgage insurance and to build equity in your home faster, it's essential to ensure it doesn't deplete your savings. Even a 3% down payment can kick-start building equity in your new home. But the larger your down payment, the less overall interest you’ll pay and the more equity you’ll have in your home.

What credit score do I need to buy a house with no money down?

It depends on a lot more than just your credit score to buy a house with no money down, including type of mortgage, lender, income, location and more. Talk with your lender about your options.

Why shouldn't I put 20% down?

The major drawback of a substantial down payment is that it reduces your savings, leaving you with fewer funds for potential emergencies. It can also take a long time to save 20% for a down payment.

The Bottom Line

Whether you're navigating the options for a lower down payment or exploring assistance programs, finding the right balance is key. While a substantial down payment offers benefits, it's essential to strike a balance that aligns with your financial situation and goals. If you’re ready to learn more about your down payment options, start the application process today.