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How much of a down payment do I need?

mortgage fundamentals
How much of a down payment do I need?

It can be intimidating to come up with cash for a 20% down payment on the home of your dreams. But do you really need to put that much down? The short answer: it's unlikely.

What is a down payment?

A down payment is the initial payment made when a home is bought through a loan. Down payments often range between 5% and 20% of the sales price (e.g. 10% down payment on a $350,000 home would be $35,000). The down payment depends on many factors, including your loan, your lender and your credit history.

When applying for a mortgage, the down payment is your contribution toward the purchase of the home. It represents your initial ownership stake in the home and the lender provides the rest of the money to buy the property.

Lenders require a down payment for most mortgages. On the contrary, VA loans and USDA loans, which are backed by the federal government, do not usually require down payments.

Minimum down payment requirements

The reason that many people prefer putting 20% down on their home is that it may allow you to get a better rate and avoid mortgage insurance.

It's important to know that you can put down less than 20%. The minimum down payment required varies depending on the type of mortgage:

  • FHA loans usually require as little as 3.5% down, and are backed by the Federal Housing Administration.
  • VA loans usually don't require a down payment, and are guaranteed by the U.S. Department of Veterans Affairs. VA loans are for current and veteran military service members and eligible surviving spouses.
  • USDA loans have no down payment requirements and are backed by the U.S. Department of Agriculture's Rural Development Program. USDA loans are for rural and suburban home buyers who meet the program's income limits and other requirements.
  • Some conventional mortgages require as little as 3% down. Conventional loans are not backed by the government, but follow the down payment guidelines set by the government-sponsored enterprises Fannie Mae and Freddie Mac.

Down payment requirements can also vary by lender and your credit history.

Benefits of a larger down payment

While a smaller down payment may allow you to afford a house sooner, making a larger down payment has advantages, like:

  • A better mortgage interest rate.
  • A lower monthly mortgage payment.
  • Lower upfront and ongoing fees.
  • More equity or ownership in your home.

How much should you put down on a house?

There is no one-size-fits all for down payments. The larger your down payment, the lower monthly mortgage bill, but putting down too much could leave you without savings for projects after you move in.

Here are some steps that can help you decide what is feasible for you:

  1. Check out our mortgage calculator to see how different down payment amounts affect your monthly payment amount.
  2. Budget carefully to make sure you have enough cash for emergencies or necessary projects once you move in.
  3. Make sure to compare mortgage rates and programs offered by lenders to get the best deal. A good way to do this is by finding a mortgage broker to assist you in the search.

Still have questions?

Find our most frequently asked questions here.

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