Down Payment Guide: How Much Do You Need?

The down payment is often the biggest hurdle between you and homeownership. It affects your loan options, your monthly payment, whether you owe private mortgage insurance, and how much equity you start with. The good news is that the old rule of saving 20% down is no longer the only path. Multiple loan programs allow you to buy a home with 3% to 5% down or even nothing at all if you qualify. This guide covers minimum requirements for every major loan type, explains the trade-offs of different down payment amounts, and provides practical strategies to reach your savings goal faster.

What Is a Down Payment?

A down payment is the portion of a home's purchase price that you pay upfront in cash, with the remaining amount covered by your mortgage loan. If you buy a $350,000 home and put $35,000 down (10%), your mortgage covers the remaining $315,000. The down payment serves several purposes: it reduces the lender's risk, establishes your initial equity in the property, and directly determines whether you need to pay mortgage insurance. A larger down payment generally means a smaller loan, lower monthly payments, better interest rates, and more favorable loan terms.

Minimum Down Payment by Loan Type

Different mortgage programs have different down payment requirements. Here is a summary of the major loan types available in 2026:

In 2026, the conforming loan limit for most areas is $806,500. Loans above this amount are considered jumbo loans and typically require larger down payments and higher credit scores.

How Your Down Payment Affects Monthly Costs

The following table shows how different down payment percentages affect a $400,000 home purchase with a 6.5% rate over 30 years:

The difference between 3% down and 20% down on this $400,000 home is $429 per month in principal and interest, plus an additional $259 in PMI savings, totaling $688 per month in lower housing costs. Over the life of the loan, the 20% down scenario saves over $115,000 in interest compared to 3% down. However, saving the additional $68,000 in cash may take years.

Understanding PMI and the 20% Threshold

Private mortgage insurance (PMI) is required by lenders on conventional loans when your down payment is less than 20%. It protects the lender, not you, in case you default on the loan. PMI adds a meaningful monthly cost, but understanding how it works and when it goes away can help you plan strategically.

How PMI Costs Are Calculated

PMI rates typically range from 0.3% to 1.5% of the original loan amount per year. The exact rate depends on your credit score, down payment percentage, and loan-to-value ratio. A borrower with a 760 credit score putting 10% down might pay 0.3% to 0.5% annually, while a borrower with a 660 score putting 3% down could pay 1.0% to 1.5%. On a $350,000 loan, that translates to a range of $88 to $438 per month.

Getting Rid of PMI

Federal law requires lenders to automatically cancel PMI when your loan-to-value ratio reaches 78% based on the original property value. You can request cancellation earlier when you reach 80% LTV. You can also achieve 80% LTV faster by making extra principal payments or through home value appreciation. If your home's value has increased significantly, you can request a new appraisal and ask the lender to remove PMI based on the updated value. Some lenders require you to wait at least two years after origination before using a new appraisal to eliminate PMI.

Real-World Down Payment Scenarios

First-Time Buyer Using an FHA Loan

Aisha is buying her first home for $275,000. She has $12,000 saved, a 610 credit score, and qualifies for an FHA loan with 3.5% down ($9,625). After paying the down payment, she has $2,375 left for closing costs; the seller agrees to cover the remaining closing expenses. Her FHA loan includes an upfront mortgage insurance premium of 1.75% ($4,649), which she finances into the loan. Her total loan amount is $270,024, with a monthly payment of $1,707 plus $195 in annual mortgage insurance premiums (MIP). Because she put less than 10% down on an FHA loan, MIP stays for the life of the loan unless she refinances to a conventional loan once she builds 20% equity.

Conventional Buyer Weighing 10% vs 20%

Thomas and Julie are deciding between 10% ($40,000) and 20% ($80,000) down on a $400,000 home. With 10% down at 6.5%, their principal and interest payment is $2,276 plus PMI of about $150 per month, totaling $2,426. With 20% down, their payment is $2,023 with no PMI. The 20% option costs $403 less per month but requires an additional $40,000 upfront. To recover that extra $40,000 through the monthly savings, it takes about 8 years. They decide to put 10% down so they can keep $40,000 in emergency reserves and investments, planning to request PMI removal once their equity reaches 20%.

Veteran Using a VA Loan

Miguel served in the military for six years and qualifies for a VA loan. He is purchasing a $320,000 home with 0% down payment. His loan amount is $320,000 at 6.25%, with a monthly payment of $1,970. There is no PMI on VA loans, though Miguel pays a one-time VA funding fee of 2.15% ($6,880), which he finances into the loan. Even with the funding fee, Miguel's total monthly payment is lower than a comparable conventional loan with PMI because he saves roughly $160 per month by avoiding mortgage insurance. VA loans are one of the strongest benefits available to eligible service members.

Strategies to Save for a Down Payment

Set a specific target and timeline. Calculate exactly how much you need (down payment plus closing costs plus reserves), then divide by the number of months until your target purchase date. This gives you a clear monthly savings goal.

Automate your savings. Set up automatic transfers from your checking account to a dedicated down payment savings account on each payday. Treating savings like a bill ensures consistency.

Reduce major expenses temporarily. Consider lowering rent by moving to a smaller place or getting a roommate. Even 12 to 18 months of reduced rent can dramatically accelerate your savings timeline.

Direct windfalls to your fund. Tax refunds, work bonuses, birthday gifts, and any unexpected income should go straight to the down payment account. These lump sums can shave months off your timeline.

Reduce discretionary spending. Track your spending for a month and identify categories where you can cut back. Dining out, subscriptions, and entertainment are common areas where small reductions add up.

Increase your income. A part-time job, freelance work, or selling unused items can provide extra cash flow dedicated entirely to the down payment goal.

Down Payment Assistance Programs

Many state, county, and city governments offer down payment assistance (DPA) programs, especially for first-time buyers. These programs come in several forms: grants that do not need to be repaid, forgivable loans that are canceled after you live in the home for a set period (often 5 to 10 years), deferred second mortgages with no payments or interest due until you sell or refinance, and matched savings programs where organizations match your savings dollar for dollar. Eligibility typically depends on income limits, purchase price caps, and sometimes the location of the property. Your state housing finance agency website is the best starting point for finding programs in your area.

Where to Keep Your Down Payment Savings

High-yield savings accounts are the safest choice for down payment funds you will need within the next 1 to 3 years. These accounts currently offer rates around 4% to 5% with FDIC insurance and instant access. Your principal is protected regardless of market conditions.

Certificates of deposit (CDs) offer slightly higher rates in exchange for locking up your money for a fixed term (3 months to 5 years). A CD ladder strategy, where you split your savings across CDs with staggered maturity dates, balances higher yields with periodic access to portions of your funds.

Money market accounts combine features of savings and checking accounts, offering competitive yields with check-writing abilities. They typically require higher minimum balances but provide flexible access.

Avoid stocks and volatile investments for money you need within three years. A market downturn right before your planned purchase could force you to delay or reduce your down payment, undermining months or years of careful saving.

Common Mistakes to Avoid

Draining all savings for the down payment. Having zero reserves after closing is extremely risky. A single unexpected repair or medical bill could put you in financial jeopardy. Keep at least three months of expenses in reserve after closing.

Forgetting about closing costs. Closing costs add 2% to 5% of the loan amount on top of the down payment. A buyer focused solely on saving 20% down may not realize they also need $8,000 to $15,000 more for settlement charges.

Waiting too long to save the ideal amount. Home prices in many markets appreciate 3% to 5% per year. If saving from 10% to 20% takes three years, the target home price may have increased by $20,000 or more, partly offsetting the benefit of the larger down payment.

Not shopping for PMI rates. You can often choose your PMI provider, and rates vary. Ask your lender about borrower-paid versus lender-paid PMI options and compare the total costs over your expected ownership period.

Making large financial moves before closing. Opening new credit accounts, making large purchases, or changing jobs between mortgage approval and closing can jeopardize your loan. Lenders re-check your financial profile before funding, and significant changes can cause delays or denial.

Last updated: February 23, 2026