Updated: Apr 19, 2022
How much you’re required to put down on a house is determined by the type of loan you get, but it generally ranges from 3% to 20% of the purchase price of the home. Beyond lender requirements, it can be financially beneficial to increase your down payment to reduce the amount of your monthly mortgage payment. Offers with larger down payments can be more appealing to home sellers who are looking for buyers with a low risk of financing issues that could delay the sale – or worse, have it fall through.
What is a down payment on a house?
The down payment on a house is a portion of the cost of a home that’s paid in cash. The balance of the purchase price is usually paid by a loan you secure from a lender and pay back in a monthly mortgage payment. Down payments are expressed as a percentage of the total purchase price and the percentage you’re required to pay is dictated by the terms of your loan. Note that not all home buyers with financing are required to produce a down payment.
How much to put down on a house?
The ideal down payment amount is 20% of the purchase price of the home. Paying 20% up front reduces your monthly mortgage payments, can eliminate costly private mortgage insurance (PMI), can reduce interest rates and improves the competitive nature of your offer.
When trying to decide how much you should put down on a home, play around with a mortgage calculator to determine an amount that works best for your finances. As you explore, remember that in addition to your down payment, you’ll have some other up-front costs you’ll need to pay at closing, collectively called your escrow funds. It can include your closing costs, prorated taxes, title fees and more.
20% down reduces mortgage payment
The more money you pay upfront, the less you have to borrow from the lender, and the lower your monthly payment will be.
Example: Let’s say you buy a $300,000 home at a fixed rate of 4.25%.
With a 20% down payment ($60,000), you’d borrow $240,000, and your monthly payment would be $1,548.
With a 5% down payment ($15,000), you’d borrow $285,000, and your monthly payment would be $1,950.
20% down eliminates private mortgage insurance (PMI)
When you put 20% down, that means you own 20% of your home. This allows you to avoid paying PMI, which is a monthly charge that’s rolled into your mortgage payment to protect the lender from what they see as a riskier loan.
Example: If you buy the same $300,000 home noted above, with 5% down, your PMI payments each month would be $181 until you own 20% of the home and refinance into a loan without PMI.
Example of the benefits of putting 20% down on a $300,000 home purchase with a 4.25% interest rate on a 30-year fixed mortgage.
20% down improves mortgage rates
Buyers purchasing with a 20% down payment can often get better interest rates. A higher down payment is considered a sign that you’re financially stable, and thus a less risky borrower in the eyes of your lender. Overall, your risk is determined by three key factors: your debt-to-income ratio, your credit score and your loan-to-value ratio. The more money you put down as part of your down payment, the stronger your loan-to-value ratio.
For example, if you borrow $240,000 on a home that’s worth $300,000, like our example above, you have a loan-to-value (LTV) ratio of 80%, or $240,000 divided by $300,000. The lower the percentage, the better.
20% down makes your offer more appealing to the seller
In a competitive market, a larger down payment can make your offer more appealing to a seller, as they feel confident that you won’t have financing issues at closing that could cause the sale to fail.
What is the average down payment on a house?
The typical down payment on a mortgaged home in 2019 was 10-19% of the purchase price of the home. While 20% is the traditional down payment amount, 56% of buyers put down less than 20%, according to the Zillow Group Consumer Housing Trends Report 2019.
Here’s a breakdown of down payment percentages from buyers who purchased homes with a mortgage in 2019:
20% of buyers have a down payment of more than 20%
19% of buyers have a down payment of 20%
21% of buyers have a down payment of 10-19%
9% of buyers have a down payment of 6-9%
17% of buyers have a down payment of 3-5%
10% of buyers have a down payment of less than 3%
5% of buyers don’t remember the size of their down paymen
Younger buyers are more likely to purchase a home with less than 20% down. Sixty-two percent of Gen Z and Millennial buyers make a down payment of less than 20%. And 60% of Gen Xers do the same. Far fewer Boomers and Silent Generation buyers put down less than 20% down, just 42%.
What is the minimum down payment for a house?
The minimum down payment for a house depends on the loan you’re using to finance the purchase. Some people may be able to qualify for loans with 0% down, but loans with 3% down or 3.5% down are common. Lower down payment loans, including the 3.5% FHA loan, are designed to make homeownership more attainable for first-time buyers.
Keep in mind that even if you finance with a loan that allows a lower down payment, you’ll usually still have to pay closing costs out of pocket. There are a few 0% down loan types that will roll all costs into the mortgage, but they can be hard to come by.
Conventional loan minimum down payment: 3%
FHA loan minimum down payment: 3.5%
VA loan minimum down payment: 0%
USDA loan minimum down payment: 0%
What are the zero-down payment mortgage options?
For most zero-down payment home loans, there are certain criteria buyers have to meet, and many people don’t qualify. Certain groups like health care workers, educators, protectors, veterans and households with disabled members can qualify for specific programs. Requirements vary, but many of these programs are available to first-time buyers or those who haven’t owned a home for at least the past three years. The home they’re buying usually has to be their primary residence, too.
Down payment assistance program: These programs allow buyers to take out a second mortgage to cover the cost of their down payment, sometimes with benefits such as zero percent interest and deferred payments. These programs are usually run by government agencies or nonprofits.
Below-market first mortgages: Also known as first-time home buyer programs, these are below-market interest rates with reduced closing costs or fees. They’re typically funded by state housing finance agencies as a way to help lower up-front and ongoing costs for first-time buyers.
Tax credit or mortgage credit certificate (MCC): The MCC is a tax credit that allows first-time home buyers to offset a portion of their mortgage interest, up to $2,000 per year, which also helps buyers qualify for a loan because it counts toward monthly income. For more information about down payment options, read about the benefits and find resources in the Mortgage Learning Center.
If you’re concerned about applying too much of your savings on a down payment and not having enough cash for costly home repairs, consider buying a Zillow-owned home. Our properties are evaluated, repaired and brought to market as move-in ready homes.
How to save for a down payment on a house
Saving enough for a down payment can be one of the biggest hurdles to homeownership. According to the Zillow Group Report, 22% of buyers said saving for a down payment is difficult or very difficult. And, it can take a long time. Buying a roughly $220,000 home and saving about 10% of the median annual income, buyers today need more than 7 years to save a 20% down payment.
Most buyers save the traditional way, tucking away a little money from each paycheck, and 55% of buyers say they made some kind of financial sacrifice to buy their home.
Minimize your life: Take a look at your spending and belongings with a critical eye. Do you have unused belongings you could sell? Perhaps empty out that storage unit to avoid the monthly charge?
Spend less: Cutting back on indulgences like dining out, cable TV or coffee shop drinks. Twenty-five percent of buyers say they reduced their spending on entertainment to afford their home purchase, and 16% report postponing or canceling vacation plans.
Earn more: Eighteen percent of buyers picked up additional work to buy their home, whether that is starting a side hustle, taking on extra shifts at work or reducing time off.
Ask for help: Buyers also ask friends and family for assistance, even using birthday cash or wedding money as part of their down payment. Thirty-four percent of buyers with a mortgage report using a gift or a loan from friends and/or family for their down payment, accounting for 15% of the average mortgage buyer’s down payment.
First-time home buyer down payments
According to the Zillow Group Report, almost half of all home buyers (45%) are first-time buyers. While most repeat buyers can apply the equity from the home they’re selling to their new home, it’s more challenging for first-time home buyers to get the money they need to secure a down payment.
This may be why using gifts or loans from friends and/or family is more common among first-time mortgage buyers at (43% report using it for at least a portion of their down payment).
Down payment gift rules
If you’re planning on using gifted money as part or all of your down payment, it’s important to realize that there are restrictions and documentation requirements.
First, your lender will need to know the source of your down payment money. Expect your lender to evaluate your past 3+ months of banking activity. Keep a paper trail of any large transfers so you can accurately account for any deposits that occur during this time period.
Your lender will also want to confirm that the money you’ve been gifted is in fact a gift, and isn’t a loan from a friend or family member that’s expected to be paid back. Additional loans affect your debt-to-income ratio and potentially make you a riskier borrower. Here are the things your lender will look for:
Relationship of gifter: Generally, gift money needs to come from a family member, spouse or partner.
Down payment gift letter: Lenders will often require that the donor write a letter that clarifies your relationship, documents the amount of the gift and the source of the gift, confirms contact information, and documents the address of the property. It also should document that the gift is a gift, and not actually a loan.
Gift money loan requirements: Not all loan types will allow you to make a down payment with 100% gift funds, especially if the home will not be a primary residence. Check with your lender to confirm the minimum borrower contribution from your personal funds for the home you plan to buy.