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

What is the minimum down payment for a house? What percentage of down payment for a house is the norm? Despite popular belief, the minimum down payment for a house isn’t 20%.

While a larger down payment may yield better loan terms, buyers can use loan programs to help them become homeowners with smaller down payments.

Let’s look at what a down payment is, the lowest down payment you can make on a house and the effect a smaller down payment may have on your monthly mortgage payment.

What Is A Down Payment?

A down payment is the percentage of a home’s purchase price you invest in the house and pay out of pocket at the closing. Your loan amount is the difference between the home 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 buying a house because the more money you invest in a property, the less you have to borrow. The lower your principal balance, the lower your monthly payment and the less interest you pay over the life of the loan.

A larger down payment keeps your total cost to buy a home lower.

What Is A Minimum Down Payment?

A minimum down payment is the lowest amount of money you must put down. Each type of home loan has different requirements for a minimum down payment on a house.

The down payment requirements for government-insured loans, like Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, are set by the agency that guarantees the loan.

What Is The Minimum Down Payment Required By Type Of Mortgage?

When buying a house, you may have many loan options. Understanding each loan program’s minimum down payment requirement can help you choose the right loan.

Conventional Loans

Conventional loans are underwritten and funded by a private lender. The loans aren’t insured by any government agency. Most conventional lenders require a 3% minimum down payment for first-time buyers and 5% for repeat 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 (DTI).

FHA Loans

FHA loans are government-backed loans. They benefit borrowers with less-than-perfect credit or a high debt-to-income ratio. An FHA loan is a common choice 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 home sale price. Some lenders may approve borrowers with a credit score between 500 and 579 and a minimum 10% down payment.

FHA loans have more lenient guidelines to help homeowners qualify with a sufficient down payment. For example, the FHA allows borrowers to use gift funds from employers or unions to contribute toward a down payment.

Jumbo Loans

Jumbo loans exceed conventional loan limits. In 2024, the limits will be $766,550 in most of the country and $1,149,825 for high-cost areas like Alaska and Hawaii. The limits change annually, but any borrower who needs more than the conventional loan limit must work with a private lender.

Most jumbo loan lenders require a higher down payment than the traditional 3% – 5% down payment because the loans are larger investments for lenders and pose a higher risk.

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

Are There No-Down-Payment Options Available?

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 USDA-designated rural area. The U.S. Department of Agriculture (USDA) doesn’t require borrowers to be first-time home buyers.

USDA loans don’t require a down payment, and you can roll your closing costs into the loan, so you may not have to bring any money to the closing table. Rocket Mortgage doesn’t offer USDA loans at this time.

VA Loans

The Department of Veterans Affairs (VA) guarantees generous, flexible mortgages for qualifying home buyers. VA loans are a government-backed program for qualified active-duty service members, veterans and surviving spouses. Like USDA loans, VA loans don’t require a down payment, and borrowers can roll their closing costs into their loans.

VA loan borrowers can buy a home anywhere as long as it’s their primary residence and they qualify for the loan, which includes serving enough time in the military and receiving an honorable discharge.

Is A Minimum Down Payment Enough?

A minimum down payment may be enough for lenders if your credit score meets the required minimum credit score and other eligibility requirements.

A minimum down payment may not be enough if you have lower credit, a lot of debt or a seller has multiple buyer offers. Sellers may pick the offer from the buyer investing more of their cash into the home.

Avoiding Private Mortgage Insurance (PMI)

The minimum down payment for conventional loans isn’t enough to avoid paying private mortgage insurance (PMI). Borrowers must make at least a 20% down payment to avoid paying PMI.

If you put less than 20% down on a conventional loan, you can eliminate PMI when you owe less than 80% of the home’s value. At that point, you’ve built up to 20% equity in your home.

Getting Your Offer Accepted

Home sellers prefer large down payments because the more money a buyer can put down, the more likely a lender will approve their loan. Also, the more secure a buyer’s financing is, the less risk there is to the seller that the buyer will back out of the sale.

Getting Your Mortgage Loan Application Accepted

A larger down payment may also help your loan application. When a borrower makes a larger down payment, the lender’s risk lowers because they invest less money into the home.

Depending on the lender and the loan, a larger down payment can be the difference between loan approval and denial when a borrower has a lower credit score, a lot of debt or is in poor overall financial health.

What Is Earnest Money, And How Is It Related To A Down Payment?

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

Earnest money sits in an escrow account that neither the buyer nor the seller can touch until the transaction is final or someone voids the agreement. Typically, if the reason a buyer bails on the deal isn’t in the agreement, the seller gets to keep the escrow deposit.

However, if the buyer moves ahead with buying the home, the earnest money can go toward the down payment or closing costs.

Is A Larger Down Payment Better Than A Smaller Down Payment?

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

A larger down payment increases your chances of loan approval and increases your chances of getting lower interest rates, which will save you money over the loan's term, lowering the home’s total costs.

Not making a larger down payment shouldn’t stop you from buying a home. Even if you must pay PMI or have a higher interest rate, a low down payment may finally unlock the door to homeownership. Over time, you can build home equity with on-time mortgage payments to eliminate PMI or refinance your mortgage loan to get better rates and terms.

Minimum Down Payment Vs. Larger Down Payment Benefits

Let’s compare the benefits of making a minimum down payment versus a larger one.

Every home buyer's financial situation is different. Weigh the advantages and disadvantages of varying down payment amounts to make the best decision for you and your budget.

What Cash Do I Need Aside From the Down Payment?

The down payment is one piece of the initial homeownership cost puzzle. You’ll also pay closing costs, moving expenses and other costs when buying a home.

Closing Costs

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

Moving Expenses

Unless your friends are helping you move and you’re using your vehicle to transport your stuff, you’ll likely have moving expenses.

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

New Homeowner Incidentals

As a homeowner, you’re responsible for everything involving your home. The cost of owning a home includes everything from replacing a malfunctioning air conditioner or water heater to repaving your driveway.

Homeowners are also responsible for utilities, property taxes, insurance, homeowners association (HOA) dues (if applicable) and furnishing. Every homeowner has different expenses when moving into a new home. It’s a good idea to save more than you think you need to prepare for the unexpected.

Down Payment FAQs

Let’s answer some of your frequently asked questions about down payments.

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

The 20% down payment requirement is a popular myth. Putting 20% down on a home eliminates the need for mortgage insurance – but it’s not a requirement. 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 will determine whether you get your earnest money back if you back out of a sales contract. If you want to ensure you can keep your earnest money if you change your mind about a house, you’ll need contingencies in the agreement. 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?

There are many first-time home buyer programs available that offer loans, closing cost assistance, homeownership education classes and tax credits.

For example, Fannie Mae offers a closing cost credit of up to 3% of a home’s purchase price to first-time home buyers who are part of the HomePath program and meet other requirements.

How do down payment assistance programs work?

Down payment assistance programs are offered through private, nonprofit organizations and government agencies. While they usually benefit first-time buyers, some programs are available for buyers based on location or loan type.

What each program offers can vary, but you can typically find housing grants, deferred-payment loans, forgivable loans or low-interest loans.

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 get into financial trouble, you’re more likely to pay your primary residence mortgage and stop paying the mortgage on a second home or rental property.

To decrease the risk of default, most lenders require a larger down payment on a home that isn’t a primary residence. Typically, a conventional loan for a second home requires a minimum down payment of 10%. Borrowers looking to purchase an investment property will need to put a down payment between 15% – 25% of the purchase price.

The Bottom Line: Buying A Home Is Cash-Intensive

Buying a home requires a down payment, funds to close the loan, money to move and other expenses. For many prospective home buyers, saving enough to meet the minimum down payment for a house allows them to move into a home sooner. However, if you can make a larger down payment, your chances of securing better loan terms increase.

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