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Down Payments Explained

Your down payment is the cash you put toward the price up front. The amount you need depends on the loan type, and more down usually means a lower payment.

Minimums by loan type

• VA and USDA: 0% for eligible buyers.
• Conventional: as low as 3%.
• FHA: 3.5% with qualifying credit. See the real payment in the FHA loan calculator.
• 20% down: avoids monthly PMI on conventional loans.

More down vs less down

A larger down payment lowers your loan amount, your payment, and your mortgage insurance, but ties up cash. A smaller down payment keeps cash available but raises the payment and may add mortgage insurance. There is no single right answer.

Down payment assistance

Many state and local programs offer grants or second loans to help with the down payment for eligible buyers. A loan officer can point you to programs you may qualify for.

What each additional 5% actually changes

Down payment affects three things at once: the loan amount, whether mortgage insurance applies, and the pricing adjustment the lender applies for risk. On a $400,000 purchase with a conventional loan near a 6.75% rate, the pattern looks like this.

Between 3% and 20% the principal and interest difference is about $440 a month, and PMI on top of that adds roughly $100 to $250 depending on tier and credit. The jump from 15% to 20% carries extra weight because it removes mortgage insurance entirely on conventional loans.

Sourcing and seasoning: where the money can come from

Lenders verify not just that funds exist but where they came from. Money sitting in your account for the full documented period is generally accepted without further questions. A recent large deposit that does not match your income normally requires a paper trail.

• Gift funds. Allowed on most programs from an eligible donor, documented with a gift letter and often a trail from the donor's account.
• Retirement accounts. A withdrawal or a 401(k) loan can be used, though a 401(k) loan repayment may or may not count in DTI depending on program.
• Sale of an asset. Usable with a bill of sale and proof of the buyer's payment.
• Cash on hand. Generally not usable. Undocumented deposits are the most common reason a file stalls late.

Down payment is not the whole cash requirement

Closing costs run separately, commonly in the range of 2% to 5% of the purchase price, and escrow funding sits on top of that. On a $400,000 purchase, a 5% down payment of $20,000 can still require $10,000 to $25,000 more at the table depending on taxes, insurance timing, and any points.

Some programs allow seller-paid costs within limits, which is why a slightly higher contract price with a seller credit can move less cash out of your pocket than a lower price with none.

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Frequently asked questions

How much down payment do I need?

From 0% with VA or USDA, to 3% conventional or 3.5% FHA, up to 20% to skip PMI.

Is 20% down required?

No. It avoids PMI on conventional loans, but many buyers put down far less.

What is down payment assistance?

State and local programs that provide grants or second loans to help eligible buyers cover the down payment.

How much does going from 5% down to 20% down change my payment?

On a $400,000 purchase near a 6.75% rate, principal and interest drops roughly $390 a month, and 20% down also removes conventional PMI, which is often another $100 to $250.

Can I use gift money for a down payment?

Most programs allow gifts from an eligible donor. Expect to provide a gift letter and, on many files, a trail showing the funds leaving the donor's account.

Do I need money beyond the down payment?

Yes. Closing costs commonly run 2% to 5% of the purchase price, and escrow funding for taxes and insurance is added on top. Seller credits can offset part of it on some programs.