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How much should you put down on a house?

Your house down payment: what it is, how it works and how much to pay

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by Jessica Render ConsumerAffairs Research Team
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When it comes to buying a home, the term “down payment” refers to the initial amount of money paid toward the purchase price. This is the money you pay upfront and outright and is not a part of the mortgaged amount. You may have heard that 20% is the ideal down payment amount, but that’s not always true. In this article, we break down how down payments work and how much you should pay.

How do down payments work?

The purpose of a down payment is to show a mortgage lender that a borrower’s finances are dependable and that they’re committed to the purchase. A down payment also reduces the amount the borrower must finance with a home loan. When a homebuyer takes out a mortgage, they make the down payment to the lending institution. If you’re taking out a mortgage with a bank where you have an account, the lender can transfer the funds. You can also use a cashier’s check, personal check or cash. Typically, the money for a down payment is due at the signing of the loan (also called closing).

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What is the average down payment on a house?

According to a 2020 survey by the National Association of Realtors, the average down payment for first-time buyers is around 10%. A 2018 edition of the same survey showed that repeat buyers tend to put a little more down, with the median down payment being 16%.

Taking into consideration the median U.S. house price of $324,900, a 10% down payment would amount to $32,490; a 16% down payment would be $51,984.

Repeat buyers tend to have a bit more capital to work with, especially those selling an existing home to purchase another property. Homeowners can take the equity they have in their current home and apply it toward a down payment for a new home purchase. Depending on how long they’ve lived in and made payments on their current home, they may have quite a bit more funds at their disposal than the typical first-time buyer.

If you're a first-time buyer having difficulty saving for a down payment, there are options to help.

Minimum down payment on a house

Down payment requirements depend on loan type and mortgage lender. While 20% is frequently touted as the standard down payment amount, it’s a somewhat outdated metric. A 20% down payment is unlikely to be required by many lenders; in fact, several mortgage types have no down payment requirement and others are as low as 3%.

Down payment requirements by home loan type:

  • Conventional: Lenders typically ask for between 5% and 20% down on conventional home loans. The amount depends on the lender and the borrower’s qualifications.
  • FHA: FHA mortgages require a 3.5% down payment.
  • VA: VA mortgage loans have a 0% down payment requirement, though buyers can choose to make a down payment if they can afford it.
  • USDA: USDA loans are available with 0% down payments.
  • Jumbo: The down payment on a jumbo loan depends on the lender. While the typical requirement is 20% or more, some lenders now offer jumbo loans for as low as 5% down.

How much should you put down on a house?

The right down payment depends on a few things: how long you plan to live there, the housing market conditions and your personal financial situation.

If you plan to stay in your home for a while, putting 20% down will save money in the long run by lowering the amount you borrow and therefore the amount of interest you pay over the life of the loan. The larger down payment a buyer makes on a home, the lower the loan amount will be, resulting in lower monthly payments. Interest rates on a mortgage with a large down payment could also be lower, as well as the amount of interest accrued.

Pros and cons of large down payments

Pros

  • Smaller loan amount
  • Potential for lower monthly payments
  • Less interest paid over the life of the loan
  • More competitive buyer profile

Cons

  • Difficult for many to afford
  • Depletes your savings
  • More money out of pocket can mean less cash on hand for home improvements

For buyers who know they won’t stay in a home for more than a few years, a 20% down payment doesn’t have much benefit — unless the housing market is so competitive that’s the only way to secure a purchase. A smaller down payment results in a larger mortgage, which means higher monthly payments, higher interest rates and more interest accrued every month. A small down payment that requires PMI also adds the cost of that insurance to the monthly payment.

Pros and cons of small down payments

Pros

  • Less money out of pocket
  • Accelerates the homebuying process for those without significant savings
  • Keep cash on hand for other home expenses

Cons

  • Private mortgage insurance might be required
  • Monthly payments could be higher
  • Higher interest rates possible
  • Takes longer to build equity

Down payment FAQ

Is it bad to put only 5% down on a house?
If mortgage interest rates are low and you take out a fixed-rate loan, putting a 5% down payment on a home does have benefits. Putting a small amount of money down can get buyers into a home faster. A small down payment also saves cash for closing costs, home improvements or other large purchases new homeowners typically make — like furniture and appliances. On the flip side, a small down payment could result in the lender charging higher interest rates, leading to a higher cost for the loan. A smaller down payment also means larger monthly payments and could mean you have to buy private mortgage insurance or pay a mortgage insurance premium to protect yourself against default.

If you know you won’t stay in the house for long, a small down payment makes financial sense because it takes years to reap the long-term benefits of a larger down payment.

Can you get a personal loan for a down payment?
Most lenders don’t advise buyers to take out a personal loan to cover a down payment, and some even disqualify borrowers with large personal loans. While it’s a possible route for some borrowers, getting a personal loan for a down payment means paying high interest rates and damaging your credit score, which affects your borrower profile and will probably result in higher mortgage rates and fewer loan options.
What is a good down payment on a house?
The appropriate amount for a down payment on a home depends on the borrower, the home price, the market, the lender and the loan itself. For a long time the rule of thumb was 20% down, but that approach doesn’t fit all situations. Down payments range from 0% to 20% or more.

Putting down a larger amount definitely saves money in the long run, but it’s not always worth it for those who don’t plan to stay in their home for extended periods. If you think you’ll move within 5 years, consider making a smaller down payment and keeping your savings account intact for home improvements, closing costs or other housing expenses. If you’re shopping for your forever home, however, it definitely could be worth it to wait until you have enough savings to put 20% or more down on a house.

Can you receive a gift for a down payment?
In short, yes. A family member can give a buyer money for a down payment. The limit for a down payment gift depends on the loan type and the borrower’s qualifications, and there are some general limits. The buyer must document the gift in a letter to the loan company to prove that it’s not a loan with repayment expectations. Ask your lender or real estate agent for specific instructions on how to document the gift so it’s clear that the funds are not meant to be paid back.

Bottom line: How to determine your down payment

Each homebuyer has a unique set of circumstances that determines the right amount for a down payment; there’s no overall good or bad here. What borrowers can afford based on savings, income, home purchase price and loan type can vary widely by situation. In a buyer’s housing market, it’s easier for borrowers to find mortgages that conform to their qualifications. If the housing market is more competitive, buyers should be prepared to put more money down to secure a loan for the home they want.

When deciding how much to put down, be sure to take into consideration the interest over the life of the loan. Take this illustration comparing 20% down vs. 10% down on a $200,000 house, for example:

Say you want to buy a house listed at $200,000. If you put 20% down, you’ll pay a $40,000 down payment and finance the remaining $160,000. If you take a low mortgage rate at around 3% for a 30-year fixed-rate loan, you’ll pay $82,844 in interest over the life of the loan. Then say you want to put 10% down and make a $20,000 down payment. Now you’re looking at $93,199 interest over the same 30-year fixed-rate loan.

Down paymentAmount financedInterest paid
20% ($40,000)$160,000$82,844
10% ($20,00)$180,000$93,199

In any case, homebuyers should prepare for a down payment of any size by organizing their finances to maximize benefits. This means thinking about how long you’ll stay in a home, how much you can afford to pay out of pocket (while saving enough cash for other expenses), how soon it’s feasible for you to make a home purchase and whether or not lower monthly payments are more beneficial than keeping more money in your pocket upfront. Look for mortgage lenders willing to work with you to find the loan best suited to your needs.

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Profile picture of Jessica Render
by Jessica Render ConsumerAffairs Research Team

As a member of the ConsumerAffairs research team, Jessica Render is dedicated to providing well-researched, valuable content designed to help consumers make informed purchase decisions they can feel confident making. She holds a degree in journalism from Oral Roberts University.