Down Payment Guide: How Much You Need and How to Save It

My first home had a 5% down payment. My second had 10%. My current home? 25%. Each time, I learned something new about how down payment size affects everything — not just your monthly payment, but your negotiating power, stress levels, and long-term wealth.

The down payment is often the biggest barrier to homeownership. But here's what most guides won't tell you: the "right" down payment isn't always 20%. This guide explains when to put down less, when to wait for more, and how I'd approach it if I were buying today.

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What is a Down Payment?

A down payment is the upfront cash you pay toward your home purchase. The rest is financed through your mortgage. According to the Consumer Financial Protection Bureau (CFPB), down payments typically range from 3% to 20% of the home's purchase price.

Example: $400,000 home

• 3% down: $12,000
• 10% down: $40,000
• 20% down: $80,000

Minimum Down Payment Requirements

Conventional Loans

Minimum: 3% for qualified buyers (some programs allow a lower percentage)

FHA Loans

Minimum: 3.5% for borrowers with credit scores of 580+

Learn more about FHA loans and requirements.

VA Loans

Down Payment: 0% required

Available to eligible veterans and active-duty service members. No PMI required.

USDA Loans

Down Payment: 0% required

Available for properties in eligible rural areas. Income limits apply.

For a complete comparison, see our Mortgage Types Comparison Guide.

Why 20% Down Payment?

Benefits of 20% Down

1. No PMI: Private Mortgage Insurance adds $100-$300/month until you reach 20% equity
2. Lower monthly payment: Smaller loan = lower payment
3. Better interest rates: Lenders often offer better rates for larger down payments
4. More equity: Start with more ownership stake in your home
5. Stronger offer: Sellers prefer buyers with larger down payments

Example: $400,000 home

• 10% down ($40,000): $360,000 loan, PMI required
• 20% down ($80,000): $320,000 loan, no PMI

Monthly payment difference: $200-$400 less with 20% down (including PMI savings)

Down Payment Impact on Monthly Payment

How Down Payment Affects Your Payment

*Based on 6.5% interest rate, 30-year term. Payment includes principal and interest only.

Use our Mortgage Calculator to calculate your specific scenario.

Down Payment Assistance Programs

Federal Programs

FHA Loans

• Down payment as low as 3.5%
• Can use gift funds from family
• Lower credit score requirements

VA Loans

• 0% down payment required
• No PMI
• Available to eligible veterans

USDA Loans

• 0% down payment required
• For rural and suburban properties
• Income limits apply

State and Local Programs

Many states offer down payment assistance:

Types of Assistance:

• Grants: Free money (don't repay)
• Forgivable loans: Forgiven after living in home for set period
• Deferred loans: Repay when you sell or refinance
• Low-interest loans: Second mortgage with favorable terms

Example Programs:

• California: CalHFA programs offer up to 3% assistance
• Texas: TSAHC offers down payment assistance
• Florida: Florida Housing offers various programs

Check HUD's list of state programs for your area.

Employer Programs

Some employers offer:

• Down payment matching programs
• Low-interest loans
• Homebuyer education and counseling

Check with your HR department.

Non-Profit Programs

Organizations like:

• Habitat for Humanity
• Local housing nonprofits
• Community development organizations

How to Save for a Down Payment

Strategy 1: Set a Target Amount

Calculate your target:

1. Determine home price range
2. Calculate down payment (3.5% - 20%)
3. Add closing costs (2% - 5%)
4. Add moving expenses ($1,000 - $5,000)
5. Add emergency fund buffer

Example: $375,000 home

• 10% down: $37,500
• Closing costs: $11,250
• Moving: $3,000
• Buffer: $5,000
• Total needed: $56,750

Strategy 2: Create a Savings Plan

The 50/30/20 Rule:

• 50%: Needs (housing, food, utilities)
• 30%: Wants (entertainment, dining out)
• 20%: Savings and debt repayment

For down payment savings, aim for:

• 20% of income to savings
• Or specific monthly amount ($500, $1,000, etc.)

Strategy 3: Cut Expenses

Quick wins:

• Cancel unused subscriptions
• Cook at home more
• Reduce dining out
• Cut cable/streaming services
• Shop around for insurance
• Refinance high-interest debt

Example: Saving $750/month = $9,000/year = $45,000 in 5 years — enough for a 10% down payment on a $450,000 home

Strategy 4: Increase Income

Options:

• Ask for a raise
• Take on side work
• Sell unused items
• Rent out a room
• Start a side business

Strategy 5: Use Windfalls

Put unexpected money toward your down payment:

• Tax refunds
• Bonuses
• Gifts
• Inheritance
• Work reimbursements

Strategy 6: High-Yield Savings Account

Keep your down payment in a high-yield savings account:

• Earn interest while saving
• FDIC insured
• Easy access when needed
• Current rates: 4-5% APY

Down Payment vs. Other Priorities

Should You Pay Off Debt First?

It depends:

Pay debt first if:

• High-interest debt (credit cards > 15%)
• Debt-to-income ratio too high for mortgage approval
• Debt payments prevent saving

Save for down payment first if:

• Low-interest debt (student loans, car loans)
• Can do both simultaneously
• Home prices rising faster than you can save

Should You Use Retirement Savings?

Generally not recommended, but:

401(k) Loan:

• Borrow up to $50,000 or 50% of balance
• Repay with interest to yourself
• No early withdrawal penalty
• Must repay if you leave job

IRA Withdrawal:

• First-time buyers can withdraw $10,000 penalty-free
• Still pay income tax
• Reduces retirement savings

Roth IRA:

• Can withdraw contributions (not earnings) penalty-free
• Better option than traditional IRA

Common Down Payment Mistakes

Mistake 1: Not Saving Enough

Don't forget closing costs, moving expenses, and emergency fund. Down payment alone isn't enough.

Mistake 2: Using All Your Savings

Keep an emergency fund (3-6 months expenses) separate from your down payment. Unexpected expenses happen.

Mistake 3: Not Researching Assistance Programs

Many buyers don't know about down payment assistance. Research state, local, and employer programs.

Mistake 4: Waiting for Perfect Conditions

Home prices and interest rates change. If you're ready financially, don't wait indefinitely for 20% down.

Mistake 5: Not Understanding PMI

PMI adds to your monthly payment until you reach 20% equity. Factor this into your budget.

Learn more about PMI and how it works.

Frequently Asked Questions

What's the minimum down payment I need?

The minimum down payment varies by loan type: Conventional loans require just 3% for first-time buyers ($12,000 on a $400,000 home), FHA loans require 3.5% with a 580+ credit score ($14,000), and VA and USDA loans offer 0% down payment options for eligible borrowers. However, putting less than 20% down requires private mortgage insurance (PMI), which adds $100-$300 monthly to your payment. Many financial experts recommend saving at least 10% down to balance affordability with lower monthly costs.

Can I use gift money for a down payment?

Yes, for most loan types. The donor must provide a gift letter stating the money is a gift (not a loan). There are limits and documentation requirements.

How long does it take to save for a down payment?

Depends on:

• Your savings rate
• Home price in your area
• Down payment percentage
• Assistance programs available

Example: Saving $1,000/month for a $40,000 down payment = 40 months (3.3 years)

Should I wait until I have 20% down?

Not necessarily — waiting to save 20% isn't always the best financial decision. If home prices in your area are rising 5-10% annually, waiting 2-3 years to save more could cost you more than PMI would. PMI typically costs $100-$200/month on a $350,000 home and can be removed once you reach 20% equity through payments or appreciation. However, if you can save 20% within 12-18 months, waiting may be worthwhile to avoid PMI entirely and get better loan terms.

Can I get a down payment assistance grant?

Many states and local programs offer grants. Check HUD's website for programs in your area. Grants don't need to be repaid.

What happens if I can't afford the down payment?

Options:

• Look into down payment assistance programs
• Consider FHA loans (3.5% down)
• Save longer
• Consider less expensive homes
• Look into first-time buyer programs

Related Articles

• First-Time Homebuyer Guide — Complete step-by-step guide for first-time buyers, including down payment strategies
• What's Really In Your Mortgage Payment? — Understand PMI, MIP, and all payment components that affect your monthly cost
• Mortgage Types Comparison — Compare FHA, VA, conventional, and USDA loans and their down payment requirements
• Mortgage Calculator: Complete Guide — Learn how down payment affects your monthly payment and total interest
• Mortgage Refinance Guide — Learn how to refinance to remove PMI once you reach 20% equity

Related Calculators

• Mortgage Calculator — See how down payment affects your monthly payment
• Closing Cost Calculator — Estimate total upfront costs
• Savings Calculator — Plan your down payment savings

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This guide provides general information for educational purposes. Consult with a mortgage professional and research local programs for advice specific to your situation.