How much should you put down on a house?

If you need a mortgage to finance a home purchase, your lender will require a downpayment to limit its risk — and ensure you have some skin in the game. A down payment is an amount you pay upfront toward a home's purchase price (outside of any closing costs). It impacts the type and amount of mortgage you qualify for, your interest rate, and your overall mortgage costs. But how much cash do you need for a house down payment? 

While 20% is often regarded as the "target" down payment, many loans let you put down less than that. In fact, the median down payment for all homebuyers in 2021 was just 13%, according to NAR.  

Of course, while a smaller down payment can make it easier to buy a home, you could end up paying substantially more in interest and fees over the life of the loan. 

 On the other hand, a larger down payment can make you a more competitive buyer, score a better interest rate, and avoid pricey mortgage insurance premiums. But it could leave you scrambling to cover home maintenance, emergency expenses, and other savings goals.

The size of your down payment ultimately depends on your income, savings, and home budget. And, if you're struggling to save a down payment, it's good to know that various programs can help lower the upfront costs for first-time homebuyers, veterans, service members, rural residents, and lower-income borrowers. 

What's the minimum down payment?

The minimum down payment your lender requires depends partly on whether you get a conventional loan or a Federal Housing Administration (FHA) loan. Private banks and lenders offer conventional loans, whereas the federal government backs FHA loans. 

Nearly all lenders offer conventional loans, which are one of the most popular types of mortgages. With conventional loans, the minimum down payment depends on the type of loan you get, the property you’re buying, and your financial situation. The minimum down payment requirements are generally:

• 3% for first-time homebuyers

• 5% if you're not a first-time homebuyer or if you're getting an adjustable-rate mortgage

• 10% if you're buying a second home

• 15% if the house you're buying isn't a single-family home

Conversely, the minimum down payment for FHA loans depends on your credit score. If your score is 580 or higher, you can put down as little as 3.5%; below 580 and you’ll pay 10% upfront. If your credit score is below 500, you’ll need to improve your financial situation before qualifying for an FHA loan. 

Is it better to put down a large down payment on a house? 

The larger your down payment, the better — provided you can comfortably afford to pay the amount. Here are a few perks of making a large down payment:

• You could get a lower interest rate. The larger your down payment, the less risk the lender takes — which means a lower interest rate for you. Saving just a fraction of a percent on your interest rate can save you thousands of dollars over the life of the loan. 

• Your mortgage payments will be smaller.The higher your down payment, the less money you borrow, and the lower your interest rate is likely to be. These factors add up to a smaller monthly payment. 

• You could avoid (or limit the costs of) mortgage insurance. If your down payment is below 20%, your lender will probably require mortgage insurance. This protects the lender (not you) if you stop making mortgage payments and dramatically increases the cost of your loan.  

There are two main types of mortgage insurance, depending on the type of loan you have:

1. Private mortgage insurance (PMI). PMI is usually required if you put down less than 20% on a conventional mortgage. The rates depend on your credit score and down payment amount. You pay PMI either upfront, as a monthly premium added to your mortgage payment, or a combination of the two. You can ask your lender to cancel PMI when your mortgage balance drops to 80% of the original value of the home. Otherwise, your lender must remove PMI when your balance hits 78%.   

2. Mortgage insurance premium (MIP). With most FHA loans, you'll pay an upfront MIP at closing equal to 1.75% of the loan, plus annual MIPs of about 0.85%. If your down payment is at least 10%, you'll pay the annual premiums for 11 years. Otherwise, you'll owe MIPs each year until you either pay off the loan or refinance into a conventional mortgage.  

What if I'm a first-time buyer?

It can be especially tough for first-time buyers to come up with a down payment. After all, soaring rental prices make it difficult to get ahead, and new homeowners can't rely on any sale proceeds from an existing house. Fortunately, several programs make the path to homeownership a little easier for first-time homebuyers:

Down Payment Assistance (DPA)

These grants and low- to zero-interest loans help first-time buyers cover down payments and closing costs. The programs are offered through government agencies and private organizations. To qualify, you generally must meet income guidelines, buy in an approved area, contribute some of your own money toward the purchase, and take a homebuyer education course. To find programs, check with your state housing finance authority, local government, or HUD’s local homebuying programs page. 

State and local programs

Many local and state governments offer first-time homebuyers grants and low-interest mortgage programs. The specific requirements vary by program and location. As with DPA programs, you can check with your state housing finance authority, local government, or HUD’s local homebuying programs page to find opportunities in your area. 

Employer-sponsored programs

Employer-assisted housing (EAH) programs help employees buy or rent homes, typically in neighborhoods close to the workplace. Assistance can be in the form of down payment grants, forgivable loans, matched savings, subsidies, and homeownership counseling. Ask your company’s human resources or people operations team about any available programs. 

Get help with low down payment programs 

You don't have to be a first-time homebuyer to get help purchasing a home. Here are a few options for government-backed and conventional loans that support a variety of buyers: 

FHA loans

FHA loans are issued by private lenders regulated and insured by the FHA. These loans allow lower credit scores than most conventional loans and offer down payments as low as 3.5%. According to the Consumer Financial Protection Bureau, FHA loans can be the cheapest option for borrowers with lower credit scores and smaller down payments.  

VA loans

The Department of Veterans Affairs (VA) has a loan program available to eligible veterans, service members, and surviving spouses. Private lenders issue the loans, and the VA guarantees them, enabling the lender to offer more favorable terms. These loans offer low interest rates and closing costs, with no down payment or PMI requirements — but there could be an upfront fee at closing.    

USDA loans

The US Department of Agriculture (USDA) offers programs for low- and moderate-income borrowers in rural areas. While these loans offer zero down payments, borrowers pay an upfront fee and ongoing MIPs to the USDA. 

HomeReady

HomeReady mortgages are financed through the Federal National Mortgage Association (aka "Fannie Mae") and designed for "credit-worthy low-income borrowers." These loans have down payments as low as 3%, cancellable mortgage insurance (once you reach 20% equity), and no minimum personal funds requirement for the down payment or closing costs. 

Home Possible

The Federal Home Loan Mortgage Corporation — or "Freddie Mac" — Home Possible mortgage helps very low- to low-income borrowers. The loan requires a 3% down payment and offers low fees, cancellable mortgage insurance, and flexible down payment sources. 

Dream. Plan. Home.

The Wells Fargo "Dream. Plan. Home." mortgage helps lower-income borrowers cover their down payment and closing costs. The loan has a 3% down payment requirement on fixed-rate mortgages and offers up to $5,000 in eligible mortgage closing cost credit. 

Wrapping up: Deciding how much to put down

Deciding how much you should put down on a house can be tricky. A smaller down payment makes it easier to buy a home, but you'll pay more in interest and fees over time. Meanwhile, a larger down payment lowers your overall cost of homeownership, but it can deplete your savings — which can be a problem in a financial emergency. 

 When considering how much to put down on a home, determine how much you need to set aside for closing costs, moving costs, renovations on the new home, an emergency fund, and other savings goals, including retirement. This can help you determine the most appropriate down payment for your financial situation. 

 And, if you need help lowering your down payment or closing costs, remember to investigate the various loan options that help make homeownership more accessible to first-time homebuyers, veterans, service members, rural residents, and lower-income borrowers.  

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.