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How much should you put down on a house?

Down payment: what it is, how it works and how much to pay

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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.

Typically, the money for a down payment is due at the signing of the loan (also called closing). 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.

What is the average down payment on a house?

The median down payment is $27,850 in 2021.

On average, Americans put about 6% down on their houses. In 2021, the median down payment amount is $27,850.

Average down payments appear to be decreasing. 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%.

For example, if you’re buying a $324,900 house, then a 10% down payment would amount to $32,490; a 16% down payment would be $51,984; a 6% down payment would be $19,494.

If you're a first-time buyer having difficulty saving for a down payment, there are down payment assistance programs that can help.

Minimum down payment on a house

While 20% is frequently touted as the standard down payment amount, it’s a somewhat outdated metric.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%.

While 20% is frequently touted as the standard down payment amount, it’s a somewhat outdated metric.”

Down payment requirements by home loan type

Down payment requirements depend on loan type and mortgage lender.

  • Conventional loan: Lenders typically ask for between 5% and 20% down on conventional loans. The amount depends on the lender and the borrower’s qualifications.
  • FHA loan: FHA loan lenders typically require a 3.5% down payment.
  • VA loan: VA lenders don’t require down payments at all, which is one of the many VA loan benefits. Still, some buyers choose to make a down payment if they can afford it.
  • USDA loan: USDA loans are available with 0% down payments. Lenders let you roll all closing costs into the loan.
  • Jumbo loan: The down payment on a jumbo loan depends on the lender. The typical requirement is 20% or more, but some lenders now offer jumbo loans with just 5% down.

How to determine your down payment

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:

Imagine 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. Alternatively, say you want to put 10% down and make a $20,000 down payment. Now you’re looking at $93,199 interest for the same 30-year fixed-rate loan.

Down paymentAmount financedInterest paid
20% ($40,000)$160,000$82,844
10% ($20,000)$180,000$93,199
5% ($10,000)$190,000$98,377

In any case, think 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 mortgage payments are more beneficial than keeping more money in your pocket upfront.

We suggest looking for a mortgage lender willing to work with you to find the loan best suited to your needs.

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    Benefits of a larger down payment

    Making a down payment of at least 20% (or more) comes with some distinct benefits. These include:

    • Lower monthly payment: The less you have to borrow, the lower your payment will be. You may also be able to opt for a shorter loan term, like 15 years.
    • No private mortgage insurance (PMI): This insurance is added to your monthly mortgage payment and protects the lender if you default on your loan. You can avoid this extra payment by putting down at least 20%.
    • Lower interest rate: Because a larger down payment means less risk to the lender, it generally results in a lower interest rate. And the lower your rate, the less interest you'll pay over the life of the loan.
    • Lower closing costs: These costs can add thousands of dollars to the loan; however, because some of these fees are tied to the total loan amount, a higher down payment can mean lower fees.
    • More flexibility: If you've prepared to put down a 20% (or larger) down payment but need to increase your total offer in a bidding war, you may have some room to lower your down payment while still maintaining favorable loan terms.
    • More home equity: Hopefully you'll be able to enjoy your new home for years, but if you end up selling soon, a larger down payment increases your home equity and reduce the chances that you'll end up "underwater" on your home loan.

    A larger down payment may not make sense in every situation, however. If it will take you years to save up a 20% down payment but you want to become a homeowner now, a government-backed loan with a lower down payment may be a good option. Also, if you prefer the flexibility of having more cash on hand or are buying a fixer-upper, you may want to keep your down payment on the lower side.

    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.

    However, a smaller down payment also means larger monthly payments and could mean you have to pay for mortgage insurance.

    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 five 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.

    Bottom line

    The right down payment depends on a few things: the housing market conditions, the type of loan and lender and your personal financial situation.

    • If you plan to stay in your home for a while: Putting 20% down can save money in the long run by lowering the amount you borrow. The larger the down payment you make, the lower the loan amount is, resulting in lower monthly mortgage payments. Interest rates on a mortgage with a large down payment could also be lower, resulting in less interest to pay over time.
    • If you won’t stay in a home for more than a few years: A 20% down payment doesn’t have much benefit in this case — unless the housing market is so competitive that it’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 due.
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. National Association of Realtors, “First-time Buyer Share Declines to 31% in September 2020 But Still Hits 2 Million.” Accessed August 13, 2021.
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