How Much Do You Need For A Down Payment To Buy A House?

If you’re buying a house for the first time or you’re looking for your next home, you may be wondering how much money you’ll need for a down payment. It’s a critical question to contemplate during the home buying process. We’ll outline the most important considerations to keep in mind about down payments to help you determine how much you’ll need to save. 

The 20% down payment recommendation can make homeownership feel unrealistic – but the good news is that very few lenders require 20% at closing. That said, making a down payment that equals 20% of a home’s purchase price offers advantages.

Before deciding on the size of your down payment, weigh the pros and cons of a large down payment to see what will work best for your finances and goals.

Let’s examine the advantages and disadvantages of a 20% down payment on a house.

Pros Of Putting 20% Down

A 20% down payment is the often recommended ideal down payment amount for most loans and lenders. If you can afford to put 20% down, you’ll reap the following key benefits:

No PMI

You’ll need to put 20% down to avoid paying private mortgage insurance (PMI) on a conventional mortgage loan. PMI is insurance that protects a lender if a borrower defaults on their home loan.

Fortunately, PMI isn’t forever. If you put down less than 20%, you can ask your lender to remove PMI once you’ve reached 20% equity in your home.

Equity is the difference between how much your home is worth and the amount you owe on your mortgage. Here are two ways to build equity:

1. Your home increases in value
2. You pay off your mortgage principal through your monthly mortgage payments

Once borrowers build 22% equity in their homes, most lenders automatically cancel PMI.

Better Interest Rates

The interest rate is a percentage of the original loan amount that a lender charges you each month for borrowing money.

The higher your down payment, the more attractive you are to lenders. Putting down 20% may provide access to a lower interest rate. And just a 1 – 2 mortgage point drop in your interest rate can save you thousands of dollars over the life of your loan.

Lower Monthly Payments

The larger your down payment, the less money you’ll borrow. The less you borrow, the smaller your monthly mortgage payments will be, leaving extra funds to budget for repairs and other monthly expenses.

Competitive Edge Over Other Buyers

Home sellers often prefer to work with buyers who make at least a 20% down payment. A bigger down payment is a strong signal that your finances are in order, so you may have an easier time getting a mortgage. This can give you an edge over other buyers, especially when the home is in a hot market.

Cons Of Putting 20% Down

Putting 20% down isn’t right for every buyer. Some buyers can’t afford it. Some buyers would prefer to have extra cash set aside for future repairs and expenses. If you’re figuring out how much down payment you need to buy a house, consider these drawbacks:

Less Financial Flexibility

Once you put money down on your mortgage, it’s not easy to get it back. If you think you might need the money for something else later on, it may make more sense to put down less and build your savings.

Less Money For Repairs

Homes that only need a few minor repairs can be a bargain for new buyers. If you anticipate making significant repairs, the larger your down payment, the less money you’ll have to spend on repairs and maintenance.

More Time Required To Save

For most people, saving for a down payment can take months, years or decades. Waiting until you reach the 20% down payment threshold may produce a huge opportunity cost. Delaying may result in significant costs to buyers due to rising home prices and soaring rents. In the long run, it may be more affordable to buy a home sooner than continue to pay rent while you save for a 20% down payment.

Yes, you can buy a home with no money down. You won’t get a zero-down conventional loan, but you can get a zero-down government-backed loan.

The federal government insures government-backed mortgage loans. Because the government guarantees a portion of the loans, they’re less risky for lenders to approve. Lenders are typically more willing to issue lower-than-average interest rates and offer more relaxed down payment requirements.

You can buy a home with no money down if you qualify for a Department of Veterans Affairs (VA) loan or a U.S. Department of Agriculture (USDA) loan. VA loans are mortgage loans for current and former military personnel and surviving spouses who meet the VA’s criteria. USDA loans are mortgage loans for homes in qualifying rural and suburban areas.

VA loans and USDA loans can have a zero-down payment, but you must meet the minimum qualifications set by both programs. Rocket Mortgage^® doesn’t offer USDA loans.

The down payment you need will partly depend on the type of loan you choose. Another minimum down payment factor to account for is whether you’re buying a primary residence, secondary residence or investment property.

Down Payment On Your Primary Residence

Down payment requirements for a primary (main) residence will vary. The requirements will depend on the type of loan you’re applying for and your financial situation.

• Conventional loan: Conventional loan requirements for primary residences depend on the lender. Some lenders may require a 5% down payment. Other lenders may require a 3% down payment. If your credit score is 620 or above, your lender may provide lower down payment loan options.

• Federal Housing Administration (FHA) loan: With an FHA loan, you’ll need at least a 3.5% down payment. To qualify for the minimum 3.5% FHA down payment, you need a credit score of 580 or higher. If your credit score is between 500 and 579, you’ll put down at least 10%. The minimum credit score required by Rocket Mortgage is 580.

• VA loan: You don’t need a down payment to qualify for a VA loan. Among other criteria, a borrower’s eligibility is also determined by length of service and reason for discharge. Visit the VA website to view the qualification requirements for the VA loan program.

• USDA loan: Like a VA loan, a USDA loan doesn’t require a down payment. The home must be in a USDA-approved rural or suburban area, and your household must meet the income requirements for the area to qualify.

If you want to supercharge your savings, explore ONE+ by Rocket Mortgage®. Pay 1% down and get a 2% grant from Rocket Mortgage to cover the rest of your down payment.¹

Down Payment On Your Secondary Residence

A second home is a residence you occupy in addition to your primary residence. The property can be a vacation home or a home you visit regularly.

• Conventional loan: Conventional loan requirements are stricter to buy a second home. To qualify for a loan on a second home, you’ll need at least a 10% down payment. Keep in mind that restrictions on what counts and doesn’t count as a second home may apply. For example, you can only rent a second home for up to 180 days a year.

• Government-backed loans: You can’t use an FHA, VA or USDA loan to buy a second property.

Down Payment On Your Investment Property

Investment property is real estate you buy to earn a return on your investment through rental income, reselling the property or both.

• Conventional loan: You’ll need a conventional loan if you’re buying a home to rent it out. Conventional loan requirements for investment properties are the strictest of any loan type. In most cases, you’ll need a 20% – 25% down payment to qualify. If your credit score is above 720, you may qualify for an investment property loan with 15% down.

• FHA loan: You can’t use FHA loans to buy investment properties unless you’re financing a multifamily home in which you also live.

• VA loan: You can’t use a VA loan to buy an investment property unless you’re financing the purchase of a multifamily home and use one of the units as your permanent residence.

• USDA loan: You can’t use a USDA loan to buy an investment property.

There’s no one-size-fits-all answer. Start by taking a realistic look at how your down payment will affect how much you pay each month on your mortgage. Take advantage of our convenient mortgage calculator to explore how different down payment amounts can affect your monthly mortgage payment.  

Figuring out the appropriate size of a down payment on a house is a common challenge for home buyers. We’ve got answers to a few frequently asked questions to help you make the right decision.

What is the standard down payment on a house?

A 20% down payment would keep many home buyers locked out of the housing market. Fortunately, 20% is no longer the benchmark for a down payment on a house. According to the National Association of REALTORS^®, in 2022, the average down payment was 6% for first-time home buyers and 17% for repeat buyers.

What is the minimum down payment on a house?

The minimum down payment will largely depend on the type of loan you choose for your primary or secondary residence or investment property. You likely won’t put any money down if you qualify for a USDA or VA loan.

Are there other costs to be aware of when buying a home?

In addition to the down payment, you must prepare to cover your closing costs and moving expenses. Then there are the ongoing expenses you’ll pay after you move in, including property taxes, homeowners insurance, HOA fees (if applicable), utilities, maintenance and repair costs and, of course, your monthly mortgage payment.

Why are down payments required by mortgage lenders?

Your down payment is one way mortgage lenders can assess your finances, establish your creditworthiness and verify that you can repay your loan. A down payment proves to a lender that you’re serious about buying a home and willing to invest your money into the property.

Can I get assistance with my down payment?

Down payment assistance programs for eligible first-time home buyers and repeat buyers include grants, forgivable loans, deferred-payment loans, low-interest loans and matched savings programs. The goal of the programs – typically administered by government agencies or private organizations – is to make buying a home attainable.

Home buyers no longer need a 20% down payment to buy a home. You can buy a home with a conventional loan for 3% down. And you may even be able to buy a home with no money down if you qualify for a VA or a USDA loan.

Once you’ve saved your down payment and decided which mortgage loan best suits your needs, you’re ready for action. Start your mortgage application with a Home Loan Expert at Rocket Mortgage.

¹ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.