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.

There are many important considerations to keep in mind about down payments to help you determine how much you’ll need to save.

What is the minimum down payment on a house?

The down payment you need will partly depend on whether you’re buying a primary residence, secondary residence or investment property. The type of loan you choose and your credit score will also impact your minimum down payment amount. A down payment can range anywhere from 0% for VA loans to 25% or more to use conventional loans for investment properties.

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. However, if your credit score is 620 or above, you may qualify for a conventional loan with a 3% minimum down payment requirement
• 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.
• U.S. Department of Veterans Affairs (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.
• U.S. Department of Agriculture (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. Please note, Rocket Mortgage doesn’t offer USDA loans.

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 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 out a second home for up to 180 days a year.

Also note, you can’t use an FHA, VA or USDA loan to buy a second residence.

Down payment on your investment property

You’ll need a conventional loan if you’re buying a home to use exclusively as a rental property or other investment. 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.

If you’re looking to buy an investment property and the amount you plan to borrow exceeds the conforming loan limits for your area, you’ll also need a larger down payment. However, there may be some flexibility since your lender will be responsible for setting the loan terms.

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

What is the standard down payment on a house?

A 20% down payment is sometimes considered the traditional down payment for a house. However, the 20% down payment recommendation can make homeownership feel unrealistic – but the good news is that very few lenders require 20% at closing. In 2023, the National Association of REALTORS^® reported that the average down payment was 8% for first-time home buyers and 19% for repeat buyers.

Before deciding on whether your down payment is 20% or less, weigh the pros and cons of a large down payment to see what will work best for your finances and goals.

Pros of putting 20% down

A 20% down payment is the most often recommended 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. Once borrowers build 22% equity in their homes, most lenders automatically cancel PMI.

Lower 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. 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 a 20% home down payment

Putting 20% down isn’t right for every buyer. Some buyers can’t afford it. Others prefer to have extra cash set aside for future repairs and expenses. Before making a decision, consider these drawbacks to making a 20% down payment:

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, 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.

Down payment assistance options

On a positive note, 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. Some employers also offer assistance. The goal of the programs – typically administered by government agencies or private organizations – is to make buying a home attainable. Be sure to speak with your lender to see if special down payment assistance programs exist for you.

The bottom line

The size of your down payment will depend on your loan type, financial situation and home buying goals. Start by considering your financing options. You’ll also want to take a realistic look at how your down payment will affect how much you pay each month on your mortgage.

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 Rocket Mortgage today.