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For most homebuyers, the down payment is the biggest hurdle. Sure, you might have a few thousand saved up in a bank account somewhere, but tens of thousands? Probably not.
Trying to figure out how much down payment for a house you need can feel overwhelming — but we can help. For many, a massive down payment isn’t necessary. In fact, depending on your financial profile and the loan programs you qualify for, you might not need one at all.
Here’s how to determine how much you’ll need for a down payment on a house:
- What is a down payment?
- How much down payment do you need to buy a house?
- Determining how much down payment for a house you need
What is a down payment?
A down payment is essentially money you put toward your house up front. The more you put down, the more of the home you technically own, and the lower your mortgage loan balance will be.
Generally, making a larger down payment will qualify you for better terms and interest rates on your loan. It will also mean a lower monthly payment and less interest paid over the life of your mortgage.
Find Out: How to Get the Best Mortgage Rate
How much down payment do you need to buy a house?
There’s no hard-and-fast number you’ll need for a down payment. It really depends on what type of loan product you qualify for, your budget, and the price of the home you’re looking at.
Let’s look at a few factors you should consider when determining your down payment amount.
Keep Reading: How to Save for a Down Payment on a House
What loans are you eligible for?
The first thing you’ll need to know is what mortgage loans you’re eligible for. Here are some of the main types of mortgages and how you might be eligible:
- Conventional loan: If you have a solid credit score, you might be eligible for a conventional loan, which requires just 3% down for some borrowers. But in a competitive home market, sellers typically prefer a 20% down payment.
- FHA loan: If you’re a first-time homebuyer or have less-than-great credit, an FHA loan may be a better choice. These loans require 3.5% to 10% down at minimum, depending on your credit profile.
- VA loan: This is for veterans and military members (and you might need no down payment at all).
- USDA loan: This is for rural home purchases (and you might need no down payment at all).
Low and zero down payment options
It can be tempting to take advantage of the low and no-down payment options mentioned above, but it’s important to remember the consequences of putting down the bare minimum on your home purchase.
For one, it will mean a higher loan balance, a larger monthly payment, and a higher interest rate — and, ultimately, that all means more interest paid in the long run. Additionally, you might also need mortgage insurance if your down payment is too low. This can add both an up-front fee at closing, as well as more to your monthly mortgage payments.
A 20% down payment isn’t necessary — but could be smart
Many claim that a 20% down payment is a must for buying a home, but as you can see from the previous sections, that’s just not true. That doesn’t mean a 20% down payment isn’t smart, though.
If you can swing it, a 20% down payment can help you out as a homeowner. It means:
- No mortgage insurance (typically 0.5% to 1% of your mortgage)
- A smaller loan balance
- A lower interest rate
- Lower monthly payments
- Less interest paid over time
A larger down payment also means you have a bigger equity stake on day one. Essentially, if you were to turn right around and sell the property, you’d stand to make more (assuming the property doesn’t lose value).
Say you’re buying a $250,000 home at a 4% interest rate. In Scenario A, you put 3% down ($7,500). In Scenario B, you put down 20% ($50,000). Here’s how your total costs look:
- Scenario A: $1,158 monthly payment; $174,284 total interest paid over time
- Scenario B: $955 monthly payment; $143,739 total interest paid over time
That’s a difference of more than $30,000 over the course of a 30-year loan (or about $1,000 each year).
So, how much down payment can you afford?
The real question you need to answer is how much can you afford. Here are a couple things to keep in mind:
- Monthly payment: Determine what monthly mortgage payment you can comfortably handle given your current debt and household income. A good mortgage calculator can help with this. Remember that the more you put down, the lower your payments will be, while smaller down payments will increase them.
- Fees and costs: Make sure you have enough for extra costs. In addition to your down payment, you’ll also have your closing costs, which usually amount to anywhere from 2% to 5% of the home’s total purchase price. You’ll also have fees for your home inspection, moving costs, and other expenses, and you’ll want to save some funds for eventual maintenance and home repairs, too.
Learn More: First Time Homebuyer? Here’s How to Get the Money for Your Down Payment
Determining how much down payment for a house you need
There’s a lot you should consider when determining what to put down on a house. If you’re unsure of the best move for your finances, consider talking to a loan officer, mortgage broker, or financial advisor. They can help you weigh the pros and cons of each option and point you in the right direction.
Make sure you also get pre-approved for your mortgage before you begin the home search, too. This can give you a leg up on other borrowers and help you set a more accurate homebuying budget.
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