How Much Do You Really Need for a Down Payment?

Saving for a down payment is often the biggest hurdle between renting and owning. Part of the challenge is a common myth: that you must have 20% of the purchase price in the bank before you can buy. Twenty percent is a helpful benchmark, but it is far from the only option. Here is how down payments typically work across popular loan types.

Down Payment Needs by Loan Type

Each figure below is a percentage of the purchase price. Keep in mind that closing costs, such as appraisal, title and lender fees, are separate from the down payment.

• Conventional loans: eligible buyers may put down as little as 3%. Putting down 20% avoids private mortgage insurance, but it is not a requirement. Learn more about conventional loans.
• FHA loans: backed by the Federal Housing Administration, these allow 3.5% down with a credit score of 580 or higher. FHA loans include mortgage insurance, including a 1.75% upfront premium. See our FHA loan page.
• VA loans: eligible veterans, service members and some surviving spouses may buy with $0 down when they have full entitlement. There is no monthly mortgage insurance, though most borrowers pay a funding fee.
• USDA loans: designed for eligible rural and some suburban areas, these may also allow no down payment for buyers who meet income and location guidelines.

What Happens With Less Than 20% Down

On a conventional loan with less than 20% down, you will typically pay private mortgage insurance, or PMI. It is added to your monthly payment and protects the lender if a loan goes into default. It is not permanent, though. Once your balance reaches 80% of the home’s original value, you can typically request to have it removed, and it generally ends automatically a bit later if you stay current.

For many buyers, paying PMI for a few years is a worthwhile trade for getting into a home sooner and starting to build equity rather than paying rent.

Where the Money Can Come From

Your down payment does not have to come only from a savings account. Depending on the loan program, funds may also come from gifts from family members, retirement account withdrawals or loans, proceeds from selling another home, or down payment assistance programs. Each source has documentation rules. Gifts, for example, usually require a signed letter stating the money does not need to be repaid. Ask your loan officer early which sources are allowed for your loan type so there are no surprises in underwriting.

Is Putting Down More a Good Idea?

A larger down payment has real benefits:

• A smaller loan means a lower monthly payment.
• You start with more equity in the home.
• It may help you qualify if other parts of your profile, like credit history or length of employment, are less strong.
• Reaching 20% on a conventional loan avoids PMI from day one.

But do not empty your savings to get there. Homeownership brings repairs, maintenance and surprises. Keeping a cushion for emergencies is just as important as the down payment itself. The right number balances a comfortable monthly payment with money left in the bank.

One more tip: lenders look at your reserves, too. Having a few months of payments set aside after closing can strengthen your file, especially for some loan types.

Finding Your Number

A good first step is to see how different down payments change your monthly budget. Our mortgage calculator makes that easy. You can also explore low down payment options to see which programs might fit your situation.

Ready to map out a plan? Reach out to FLO Mortgage, and a loan officer will help you compare options and choose a down payment that works for you.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.