How Much Is a Down Payment on a House?

Learn how much you should put down when buying a house.

If you plan on applying for a mortgage to finance a home purchase, you will have to contribute a down payment. What is a down payment? It’s a portion of the total home cost that you pay up front. The amount of money you will need to save to pay for a down payment will depend on a number of factors including the home value of the house you wish to purchase and the type of loan you take out. Keep reading to find out how much money you should save if you want to buy a house.

Down Payment Amounts for Different Types of Mortgages

The type of home loan you choose will determine how much you will have to pay upfront for the down payment. Here is what you will have to pay with some of the most common types of home loans:

  • Conventional mortgage: Any mortgage that is not insured or backed by the government is considered a conventional home loan. Typically, these loans require a down payment of 20 percent or more. If your down payment is less than 20 percent, you will likely need to pay for private mortgage insurance.
  • FHA mortgage: The Federal Housing Administration offers loans to qualified homebuyers who wish to purchase their first home, who are seniors or who want to make their homes more energy-efficient. For first-time homebuyers who qualify for an FHA loan, the down payment can be as low as 3.5 percent.
  • VA loan: The U.S. Department of Veteran’s Affairs offers VA loans to service members, veterans and eligible surviving spouses who want to buy a home. These loans often do not require a down payment.
  • USDA loans: The United States Department of Agriculture provides home loans to people who want to purchase a home in an eligible rural area. This type of loan usually comes with some income requirements. Some USDA loans do not require a down payment.

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When in Doubt, Aim for a 20 Percent Down Payment

Unless you qualify for a government loan, it’s a good idea to be prepared to put 20 percent down on a home when you take out a mortgage. Although it is possible to finance a home by putting down less than 20 percent of the home price, it’s always recommended you save for at least that much for a number of reasons:

  • No PMI: Due to the increased risk associated with a smaller down payment, most lenders will charge private mortgage insurance until you achieve 20 percent equity in your home — often a real challenge given today’s housing market. PMI is notoriously expensive and tough to cancel; you’re better off avoiding the fee completely by saving for a proper down payment. If you do have to pay for it, make sure you know how to get rid of PMI.
  • Smaller payments: In addition to PMI, lenders will typically charge a higher interest rate on loans with less than 20 percent down to offset that risk further. However, saving a full 20 percent to put down on a home will not only keep your interest rate low; contributing more money also cuts down the total principal financed, translating to smaller monthly payments.
  • Improved chances of getting approved: Many mortgage lenders won’t even give you a mortgage if you can’t put 20 percent down, so it’s best to be prepared to pay that much upfront.
  • Instant equity: You build immediate equity when you make a significant down payment on the home you purchase. Your 20 percent down payment also acts a safeguard against a temporary downturn in the market.

It can be tempting to cut corners while saving for a home, especially when it feels like there are so many factors working against you. However, having patience and following a well thought out savings strategy to reach 20 percent down is the smartest, most cost-effective thing you can do on your way to becoming a homeowner. Remember, the sooner you start saving, the easier it will be to reach your goal, so create a plan today and stick to it.

Click to get the answer to the question: How much house can I afford?

Casey Bond contributed to the reporting for this article.

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