How Much Do You Need for a Down Payment?
The amount you need depends on the loan type and lender requirements. Here are the most common thresholds:
| Loan Type | Minimum Down | Notes |
|---|---|---|
| Conventional (Fannie/Freddie) | 3% | PMI required until 20% equity; lenders typically require 620+ credit score |
| FHA Loan | 3.5% | Requires 580+ credit score; MIP for life of loan if <10% down |
| FHA Loan (lower credit) | 10% | For credit scores 500–579 |
| VA Loan | 0% | For eligible veterans and service members; no PMI |
| USDA Loan | 0% | Rural areas only; income limits apply |
| Conventional (no PMI) | 20% | Avoids PMI entirely; best rate pricing |
What Is PMI and How Much Does It Cost?
Private Mortgage Insurance (PMI) protects the lender — not you — if you default on the loan. It's required on conventional loans when your down payment is less than 20%. The annual cost typically ranges from 0.5% to 1.5% of the loan amount, depending on your credit score, loan-to-value ratio, and lender.
Note: as of November 2025, Fannie Mae and Freddie Mac removed their minimum credit score thresholds from GSE eligibility guidelines. Individual lenders still set their own floors — typically 620 for conventional loans — but the hard GSE minimum no longer applies.
On a $360,000 loan with a 1% PMI rate, that's $3,600 per year — or $300 per month added to your payment. PMI automatically cancels when your loan balance reaches 80% of the original home value (you can also request cancellation). FHA loans work differently: they charge a Mortgage Insurance Premium (MIP) that often lasts the life of the loan.
Don't Forget Closing Costs
Closing costs are fees paid at settlement — to your lender, title company, and local government. They typically run 2–5% of the home price and include:
- Loan origination fee (0.5–1%)
- Appraisal fee ($300–$600)
- Title insurance and settlement fees ($1,000–$2,500)
- Prepaid items: homeowners insurance, property taxes, prepaid interest
- Recording fees and transfer taxes (varies by state)
On a $400,000 home, expect to bring $8,000–$24,000 to closing on top of your down payment. Seller concessions can cover some or all closing costs — ask your agent to negotiate them into the purchase offer. On VA and USDA loans, certain fees can also be financed into the loan amount, but this generally isn't available on conventional purchase loans.
Is 20% Down Always Better?
Not necessarily. Putting 20% down eliminates PMI and gives you a lower monthly payment, but it also ties up a large amount of cash. If your emergency fund is thin or you're forgoing higher-return investments to hit 20%, a smaller down payment might make more sense. Run the numbers both ways: compare the monthly cost of PMI against the opportunity cost of that extra cash sitting in home equity.
Frequently Asked Questions
Can down payment funds come from a gift?
Yes — most loan programs allow gift funds from family members. For conventional loans on a single-family primary residence, 100% of the down payment can come from a gift — there is no requirement to contribute your own funds. The own-funds requirement only applies to second homes and 2–4 unit primary residences when putting less than 20% down. FHA loans also allow 100% gift funds. In all cases you'll need a gift letter confirming the money is a gift, not a loan.
What is a down payment assistance program?
Many states, counties, and municipalities offer down payment assistance (DPA) programs for first-time buyers or buyers below certain income thresholds. These can come as grants (free money), forgivable loans, or deferred-payment loans. Search "[your state] down payment assistance" or ask your lender — many buyers leave this money on the table simply because they don't know it exists.
Does a larger down payment affect my interest rate?
Yes. Lenders price loans by risk, and a larger down payment reduces their exposure. Conventional loans use risk-based pricing adjustments (LLPAs) tied to your LTV ratio — putting down 25% or more instead of 20% can shave a few basis points off your rate. The impact is more pronounced at lower credit scores.