First Steps

How Much Should You Put Down on a House?

Published on: April 20, 2022

how much should you put down on a house

How much should you put down on a house?

The answer depends on your monthly budget, available savings, and overall financial situation. You’ll also need to meet the minimum mortgage down payment requirement for the loan you’re applying for.

Saving up for a mortgage down payment can be a challenge and is one of the biggest hurdles prospective homeowners face. Fortunately, loan programs with low down payment requirements can make coming up with a down payment easier.

What is the average down payment on a house?

Many homebuyers think they need a 20% minimum down payment for a house — but you can purchase a home with far less. According to the National Association of Realtors (NAR), the average down payment on a house for first-time homebuyers is between 6% and 7%. And among repeat buyers, the typical down payment for a house is currently 17%.

While a 20% down payment will give you access to more loan options and better mortgage terms, the reality is that most homebuyers purchase their home with a lower amount down.

How much down payment do I need for a house?

If you’re wondering how much should you put down on a house, you’ll need to consider multiple factors. Your available savings, current financial situation, and monthly budget will dictate what percentage down payment on a house makes sense for you. You’ll also need to make the minimum mortgage down payment for the loan program you’re applying for. 

Here’s a look at mortgage down payment requirements for popular loan programs:

Mortgage type Minimum down payment requirement
Conventional 3% (20% to avoid PMI)
FHA  • 3.5% with a credit score of 580 or higher

• 10% with a credit score of 500 to 579 

USDA No down payment required
VA No down payment required

How much should I put down on a house?

Meeting the mortgage down payment requirement for a loan program will determine whether or not you qualify for a particular mortgage type. But that’s just a starting point. Homebuyers, of course, can — and in some cases, should — put down more than the minimum down payment for a house.

Making a mortgage down payment above the requirement will reduce the loan amount, make your monthly payments more affordable, and cut down the total cost of the loan. For example, conventional (non-government) loan borrowers pay less for private mortgage insurance (PMI) the more they put down — and they won’t pay PMI at all with a 20% down payment. Avoiding loan fees reduces the loan cost and stretches your buying dollars. 

But making a large down payment could leave you with less cash for closing costs and reduce your liquid savings. A mortgage calculator can help you determine what percentage down payment on a house is best for your budget and financial situation. Run multiple scenarios to see how different down payments will impact your monthly payment.

Benefits of larger vs. smaller down payments

To help answer the question, how much should you put down on a house, consider the pros and cons of large and small down payments. Putting down as much as you can on a home has multiple benefits. But making a smaller mortgage down payment has some advantages too. 

Benefits of making a larger mortgage down payment

  • Lower loan amount and monthly payments. The more money you put down upfront, the less you have to borrow, resulting in smaller mortgage payments.
  • Fewer loan fees. A larger down payment can reduce or eliminate mortgage insurance or other fees.
  • Lower total loan costs. With a larger percentage down payment, you’ll be financing less and paying less in interest and fees, reducing the overall cost of the mortgage. 
  • Better interest rates. Banks consider the size of your down payment when determining the interest rate on your loan. 
  • More home equity. With a larger mortgage down payment, you’ll have instant home equity and a lower loan-to-value ratio. If home values drop shortly after your home purchase, you’ll be less likely to be underwater. 

Putting a larger mortgage down payment can benefit you in other ways, too. It will increase your chances of loan approval and give you access to more loan options. It can also offset negative aspects of your mortgage application, such as a low credit score. Additionally, a larger down payment can be advantageous if you face bidding wars in a hot real estate market.

Benefits of making a smaller mortgage down payment

  • More cash for closing costs. Putting less down on a home means you’ll have more in your pocket for closing costs, moving expenses, and other costs related to the purchase. 
  • More accessible savings. Your savings will be accessible instead of being tied up in your home.
  • You’ll be able to purchase a home sooner. Making a smaller mortgage down payment can allow you to buy a home faster, as you won’t have to save up for as long to get a down payment.

How much should you put down on a house to lower your payment?

The size of your mortgage down payment affects your loan payment and the total cost of the loan. The example below looks at how different down payment amounts impact a 30-year fixed-rate conventional mortgage with a 4% interest rate on a $400,000 home. 

Down Payment Loan Amount Principal and Interest PMI Monthly Payment* Total Principal and Interest
5% ($20,000) $380,000 $1,814 $139 $1,954 $653,103
10% ($40,000) $360,000 $1,719 $132 $1,851 $618,729
20% ($80,000) $320,000 $1,528 $0 $1,528 $549,982

* Does not include property taxes and homeowners insurance.

When comparing the impact of a 20% down payment versus 5%, the borrower pays $426 less a month, and they save more than $103,000 over the life of the loan. On the other hand, the $60,000 difference in the down payment is significant, and it could take the borrower a long time to make up the difference.

What if I can’t afford the down payment?

If you struggle to save up the minimum down payment for a house, you’re not alone. In a recent survey from NAR, many prospective buyers say their limited income or other expenses hold them back from saving up for a mortgage down payment.

Here are some ways to tackle this common hurdle:

  • Focus on no and low down payment mortgages. As listed above, many loan programs have low- or no down payment requirements. Options include government-backed loans — FHA, USDA, and VA loans — and some conventional loan programs. Some low down payment loans have income restrictions or target specific buyers, such as programs for first-time homebuyers, but you may find a loan for your situation given the multiple options available. 
  • Consider down payment assistance programs. Many state governments, regional housing authorities, and community organizations offer closing cost and down payment help. The type of assistance varies between programs but can include grants, no-interest forgivable loans, or traditional second mortgages. The U.S. Department of Housing and Urban Development (HUD) is a good resource for learning about state and local homebuyer programs. 
  • Delay the home purchase. Waiting to buy a house may not be your first choice. However, delaying your purchase and saving more will allow you to increase your mortgage down payment and potentially qualify for a loan with better terms. 
  • Use gift funds. Some loan programs allow a portion of the down payment to be gift money. If you have a friend or relative willing to assist you with the down payment, that can help you purchase your home faster.

Would you like help determining how much should you put down on a house? Connect with a Finance of America Mortgage Advisor today to discuss your loan options.

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