How much do have to put down on a house

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The amount you should put down when you’re buying a home is a personal decision that depends on what’s best for your finances. You have to put down some minimum amount to qualify for a mortgage. For a conventional mortgage, that amount is usually 3% of the home’s price.

You might want to put down more than that because you have to pay interest to borrow money. The more you borrow, the more you pay. At the same time, you don’t want your down payment to be so large that it leaves you with too little savings. Most homebuyers also want enough cash after closing to do things like buy new furniture or paint the walls.

What Is a Down Payment?

A down payment is your equity in a home at the moment you buy it. It’s the percentage of the purchase price you don’t finance. Lenders require homebuyers to make a down payment for most mortgages.

If you got a mortgage for 100% of the purchase price, your down payment would be 0%. If you got a mortgage for 80% of the purchase price, your down payment would be 20%.

For conventional and Federal Housing Administration (FHA) loans, the size of your down payment determines how much you’ll pay for mortgage insurance.

How Does a Down Payment Work?

A down payment shows lenders that you’re serious enough about home ownership to invest your own savings in the property. Your investment helps demonstrate that you think the property is a wise purchase and that you’re committed to paying the mortgage you’re asking for. No rational person will throw their savings at a property they think is worth less than the asking price or that they plan to abandon if times get tough.

Still, since the lender is investing more money in the property than you are, they’ll order an appraisal to get an independent, professional opinion on the property’s value. They’ll also check your credit score, income and debt to see if you’ll be able to pay the mortgage.

How to Calculate a Down Payment

Here are two ways to calculate your down payment. The first is based on the dollar amount you’ve saved. The second is based on the minimum percentage you need to put down.

Down Payment Formula 1

Amount saved / purchase price = percentage down

Let’s say you have $10,000 saved and you’re looking at a $200,000 home. Your down payment is $10,000 / $200,000 = 0.05, or 5%.

Down Payment Formula 2

Percentage down X purchase price = amount to save

Let’s say you want to put at least 3% down and the median home in your area costs $300,000. You need to save at least 0.03 X $300,000, or $9,000.

Factors Affecting Your Down Payment

Other than what you can afford, the biggest factor affecting your down payment is the type of mortgage you want to qualify for.

20% Down Payment: Is it Necessary?

Young homebuyers, low-wage homebuyers, people with kids, people with high student debt and anyone in an expensive housing market can have trouble saving up 20% of a home’s purchase price.

Fortunately, with the wide range of home loans available in today’s market, it’s possible to buy a home with as little as 3% down. You can even put 0% down if you qualify for a down payment assistance program, a VA loan or a USDA loan. The size of your down payment doesn’t need to deter you from buying a home.

Average Down Payment on a House

The average down payment on a home is 12%, according to the National Association of Realtors. For first-time homebuyers, the average down payment is just 7%. Repeat buyers put down an average of 16%. If you can’t put down 20%, you’re in good company.

How Much Should You Put Down?

How much to put down is a personal decision. Let’s say you qualify for a loan with a minimum down payment of 3%. What are some reasons why you might want to make a larger down payment, somewhere between 3% and 20%?

Avoid private mortgage insurance (PMI) or pay less for PMI
Lower your monthly mortgage payment
Pay less mortgage interest in the long run

However, making a larger down payment requires trade-offs:

Waiting longer to buy a home
Having less cash to fix up your new home
Having a smaller emergency fund

How to Save for A Down Payment

There are several ways to save for a down payment:

Create a budget. If you don’t already have a budget, you can make one by tracking your monthly income and expenses. This will help you see if there’s any wiggle room to put more money toward a down payment.
Trim your expenses. After you have a budget set up, look for any areas where you can cut back on spending—for example, canceling unused subscriptions or cooking at home instead of going out. You can then put the money you save toward your savings goal.
Open a dedicated savings account. Having an account dedicated specifically to your down payment goal can help you more easily keep track of how much you’ve saved and how much more you’ll need. Consider using an account that will earn you more interest than a regular savings account, such as a high-interest savings account, money market account or certificate of deposit (CD).
Pay off debts. High-interest debts—such as credit card debt—can make it hard to come up with extra money for a down payment. If you can wait on a down payment, it could be a good idea to put any extra cash toward paying off debts so you can save money on interest and have more financial flexibility. Repaying debts can also reduce your debt-to-income (DTI) ratio, which helps you qualify for a mortgage.
Pause other savings goals. While it isn’t ideal, you could temporarily pause other financial goals to focus on saving for a down payment. For example, you could put a hold on 401(k) contributions to put that money toward a down payment. Be sure not to dip into your other savings accounts—such as emergency funds or individual retirement accounts (IRA)—so you don’t find yourself in a financial bind later on.

Down Payment Assistance Programs

You may be able to buy a house with no down payment if you qualify for a down payment assistance program. These are often city- or state-based, and they usually provide no more than the bare minimum you need to qualify for a loan, such as 3%. The Community Seconds and Affordable Seconds programs are two ways to buy a home with 0% down.

Sometimes you will still need to fund part of the down payment yourself, but you might only need to come up with 1% or 2% of the purchase price instead of 3% or more.

How does down payment assistance work? Sometimes it’s a low-interest loan or a no-interest loan that you’ll have to pay back. Other times it’s a grant that doesn’t need to be repaid. Down payment assistance also can be a forgivable loan that you won’t have to repay as long as you live in the home for a certain amount of time.

Down payment assistance programs are usually limited to first-time homebuyers or low-income homebuyers; the definition of low-income will reflect local housing prices.

How to Buy a House With No Down Payment

In some cases, you might be able to purchase a home with no down payment. For example, USDA and VA loans don’t require a down payment. Because these loans are guaranteed by the government, there’s less risk to the lender even without the borrower putting money down.

There are also some private lenders that offer no-money-down mortgages, such as Navy Federal Credit Union and North American Savings Bank. However, these loans are much less common now.

You could also consider a rent-to-own arrangement, where you rent a home with the option to buy it later. During the rental period, a portion of your payments will cover the rent while the rest will be put toward a down payment on the house. This can help you avoid having to come up with a large lump sum to put down—though keep in mind that it’s best to get preapproved for a mortgage beforehand to make sure the home is in your budget.

Frequently Asked Questions (FAQs)

What is the minimum down payment for a house?

The minimum amount you can put down will depend on the type of mortgage you get. For example, you’ll typically need to put at least 3% down for a conventional loan or 3.5% down for an FHA loan, while USDA and VA loans don’t require a down payment.

How much down payment do you need to avoid PMI?

For a conventional loan, you’ll need to put at least 20% down to avoid PMI. If you put down less than this, you’ll have to pay PMI until your loan has reached 80% of the original home value or you’ve reached the halfway point of your repayment term.

You could also consider an 80/10/10 loan (also called a piggyback loan). With this option, you’ll get a mortgage that pays for 80% of the home’s purchase price, then piggyback on that loan with a second loan to cover 10% of the purchase price. To qualify, you’ll need to put at least 10% down, but you also won’t have to worry about PMI.

Keep in mind that the second loan—usually a home equity line of credit (HELOC)—will usually come with a higher, variable interest rate and larger monthly payments, which could outweigh any savings from avoiding PMI.

When do you pay the down payment on the house?

Typically, a down payment is paid in two installments. The first is called an earnest money deposit and is paid after the seller accepts your offer—this signals your intent to follow through with the purchase. You’ll pay the second installment along with other closing costs on your closing day.

Is 5% enough to put down on a house?

The short answer is yes, a well-qualified borrower can certainly get a mortgage loan with 5% down. That's enough to satisfy most mortgage lenders these days. But you will most likely have to pay for private mortgage insurance with a down payment of 5% or less.

What is the normal amount to put down on a house?

The average down payment in America is equal to about 6% of the borrower's loan value. However, buying a home with as little as 3% down is possible, depending on your loan type and credit score. You may even be able to buy a home with no money down if you qualify for a USDA loan or a VA loan.

How much of a down payment do you need for a $200 000 house?

To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%).