Minimum down payment for a house: A first-time buyer’s guide

A down payment is one of the major costs you’ll need to consider when buying a home. Each home loan program comes with a different minimum down payment, often ranging from 3% to 20% of the home’s purchase price. Realtor.com reported that in the first part of 2024, the average down payment was 13.6%. 

Because first-time homebuyers don’t have the benefit of using the sale proceeds from another home toward the down payment, it can be difficult to save for this cost. But understanding how down payments work, the minimum you’ll need to pay, and how to save for this cost can help when you’re ready to buy a home.

What is a down payment and why is it important?

A down payment is money you put toward a home purchase at closing. Lenders require down payments to ensure you’re committed to the loan and have some personal investment in the property.

Down payments are often expressed as a percentage of the home’s sale price. For example, 5% of a $500,000 home would be a down payment of $25,000. While down payments mean you’ll need to come up with a lump sum of cash at closing, they do provide several benefits. 

“They reduce your monthly mortgage payments and increase your chances of qualifying for lower interest rates,” said Hazel Secco, a certified financial planner and CEO of Align Financial Solutions. “This is particularly important if your credit score isn't strong.”

If you put down at least 20% on a conventional loan, you can also avoid paying private mortgage insurance (PMI). Lenders may require PMI as protection from default, but it can often be canceled when you reach 20% equity in your home. 

What are the minimum down payment requirements for different loan types?

Each home loan program comes with a different minimum down payment. Understanding them can help you figure out which type of mortgage you’d like to apply for:

• Conventional conforming loans: A conforming loan is eligible to be purchased by government-sponsored enterprises Fannie Mae or Freddie Mac. ItThey requires a minimum down payment of 3%. 
• FHA loans: Mortgages backed by the Federal Housing Administration (FHA) require a minimum down payment of 3.5% as long as your credit score is 580 or higher. If your score is between 500 and 579, you’ll need to put at least 10% down. 
• VA loans: These mortgages are guaranteed by the U.S. Department of Veterans Affairs. VA loans come with a 0% down payment, as long as the sales price isn’t higher than the home’s appraised value. 
• USDA loans: Mortgages insured by the U.S. Department of Agriculture (USDA) are designed for low- to moderate-income buyers in eligible rural areas. There is no down payment requirement for USDA loans if you qualify. 
• Jumbo loans: Homebuyers use jumbo loans for homes that exceed the conforming loan limit, which usually changes each year. In most U.S. counties in 2024, the limit is $766,550. You'll also need to have a strong credit score, typically above 700, and significant cash reserves. Down payment requirements vary by lender, but are typically around 10% or more.

How can first-time homebuyers save for a down payment?

Regardless of your goal, you’ll have to focus on saving a sizable amount. The median home sale price was $439,950 in July, according to Redfin data. For a home of that price, a 20% down payment would require you to save $87,990; a 5% down payment would be $21,997.50. 

A homebuyer might be tempted to use all their savings for the down payment, but they should also consider the amount they need to keep for emergencies.

“Keeping a nest egg in the bank is wise,” said Anna DeSimone, author of “Closing the Gap in Homeownership.” Your emergency savings fund can cover unexpected home repairs or your mortgage payments when needed.

Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage, suggested making a smaller down payment rather than dipping into an emergency savings account. 

“Owning a house is not a cheap endeavor, and you need to be prepared for potentially significant unexpected costs associated with homeownership,” Alvarez said. “If you way overextend yourself financially to make the purchase, you could be setting yourself up for failure.”

Secco concurred: “An emergency fund is non-negotiable,” she said.

Here are some techniques you can use to save for a down payment:

1. Set a budget: Take a look at your income and regular expenses, such as housing costs, debt payments, and recreation. Also look for ways to increase your income, such as finding a part-time job or asking for a raise.
2. Pay down debt: Reducing your debt can free up funds for your savings goals later — and possibly help you qualify for a mortgage. As you reduce debt, your credit score will improve. In addition, lenders will look at your total debt when you apply for a mortgage.
3. Boost your savings: Look into putting a little extra in your savings using high-yield accounts, if you can. Try to get the most out of your funds.
4. Cut back on spending: When you create your budget, you should also be able to see where you’re spending money on activities, dining out, or shopping. If you can, cut back or find alternatives. 

What down payment assistance programs are available?

Down payment assistance programs are often funded by government agencies (either state or federal) or nonprofit organizations. The Department of Housing and Urban Development (HUD) has a list of state programs and resources. You can also check with your lender to see if they offer any special programs. 

First-time homebuyers could be eligible for grants, which don’t need to be repaid. For instance, the National Homebuyers Fund covers up to 5% of a loan amount for eligible buyers. You may also qualify for need-based aid in your state, such as the ONE Mortgage Program in Massachusetts. You can check your city, county, or state’s website to see if down payment assistance grants available. 

How do gift funds and grants help with down payments?

Homebuyer grants are typically funded by local nonprofit housing partnership entities, and municipal agencies, such as the town’s housing department. Grants are free and require no repayment. 

A gift fund is money your family members can contribute toward your down payment or closing costs. A person can give a family member up to $18,000 per year without incurring tax, according to the IRS.

If you receive one, you “need to ask the donor for a gift letter and a copy of the bank statement showing the source of gift funds,” DeSimone said. “It helps to explain the process to donors in advance, and assure them that all transaction funds must be verified, whether they are in the form of a gift, the borrower’s own savings, or a contribution from a third party.”

Minimum down payment for house first-time buyer FAQ

Can I buy a house with zero down payment?

Yes. VA loans and USDA loans don’t require down payments. But you may have to cover other upfront costs, like the VA loan funding fee (which ranges from 1.25% to 3.3% of the loan amount upfront) and the USDA loan guarantee fee (a 1% payment upfront and 0.35% annually). The downside to a 0% down payment is you’ll typically have to take out a larger loan, which may mean higher monthly mortgage payments, paying more toward interest over the life of the loan, and taking longer to build equity.

What is the minimum credit score for a low-down-payment mortgage?

You'll need a credit score of at least 620 to get a conventional conforming loan with a 3% down payment. FHA loans require 3.5% down when your credit score is at least 580. You'll need to make a 10% down payment if your credit score is between 500 and 579. USDA loans and VA loans don't have minimum requirements, but you can find some sample credit score requirements on lender websites.

Are there any first-time homebuyer incentives?

Government, private, and nonprofit programs offer grants, which can provide financial assistance to first-time homebuyers in the first stages of financing a home. Grants don’t need to be repaid, though some low-cost loans are repayable. Both types of incentives can help you cover down payments, closing costs, interest rate discounts, forgivable loans, and tax credits. 

How do I apply for down payment assistance programs?

The HUD website has resources by state, including links to housing counseling agencies, homebuying programs, and disaster or other emergency support. Many programs are geared toward households earning 80% or less of their area’s median income (sometimes up to 120%). They may stipulate that a home purchase can’t exceed a set amount, and may require proof of savings, a certain credit score, and for a buyer to take a financial literacy course. You may also have to live in the home for a set number of years before selling or renting the property.