How Much Down Payment for a House: What You Need to Save

It’s the oldest personal finance advice in the book–don’t buy something if you can’t afford it. That wisdom is just as useful today as it was before the first dollar was ever minted.

But when it comes to the housing market, the notion of what’s “affordable” varies depending on who you talk to. Some people will tell you to not even start the house-hunting process until you have at least 20% saved for a down payment. Some say to put down as little as possible so you can start earning equity ASAP.

The truth, as always, is somewhere in between.

How much down payment for a house on a mortgage depends entirely on your personal situation. It’s almost always better to put down as much as possible, but that amount can vary wildly from person to person.

For some, a full 20% just isn’t in the cards–and neither is waiting long enough to save it.

If you’re confused about which direction to go, you’ve come to the right place. Read ahead for everything you need to know about picking the right down payment size.

• How Much Down Payment Is Normal for a House?
• Factors That Influence How Much Down Payment You Should Make
• How Much Down Payment Is Needed for a House?
• What Is the Benefit of a Larger Down Payment?
• Down Payment Options
• Use Mint to Help You Save for Your Down Payment

How Much Down Payment Is Normal for a House?

There is no set, standardized down payment.

Just like most investments, it depends on how much you are spending on said item, in this case, a home. Typically, how much down payment for a house depends on how much the house costs that you are looking to purchase. In 2021, the average down payment for a single-family home was $74,403 and the median down payment was $28,300.

Factors That Influence How Much Down Payment You Should Make

There are a variety of factors that can contribute to how much is needed for a down payment on a house including:

• The cost of the home
• Lender’s requirements
• Credit score
• Your personal financial situation 

According to a recent survey, 32% of non-homeowners said limited income was holding them back from buying. It’s important to factor in these considerations when you’re financially preparing to buy a home and save up for your down payment. Doing so will help you ensure that you’re in the best possible position before you move forward.

How Much Down Payment Is Needed for a House?

As we mentioned, the amount you need for a down payment is highly personal to your circumstances—from personal finances to property values and inflation. However, below we’ll go into more detail about different down payment amounts that you may decide to put down:

Why 20% Has Been Historically Recommended

One first-time buyer mistake is assuming you have to put 20% down. Lenders don’t require a 20% down payment, but they definitely prefer one. The more a borrower can put down, the more stable they look in the eyes of the bank. Putting down more can have its benefits, but 20% is the industry standard. 

To put it simply, borrowers who have a less-than-perfect credit score or a lower income can improve their chances of getting their dream home by putting down 20% or more.

Can You Buy a House Without a Down Payment?

Once you’ve figured out your financial situation, you can decide how much a down payment on a house is manageable. The amount of your down payment can impact the type of loan your lender will offer, interest rate, and loan costs. 

There are low or no-down-payment options available to some through special programs, including veterans  and service members, some types of first-time buyers, and others. Doing your research and consulting with your lender will give you a wider array of potential options that may work for your needs.  

Is 5% Down Payment Enough for a House?

It can be. Some lenders may allow 5% for certain types of loans—usually depending on your financial profile and the cost of those in question. Here are also certain loan programs that are focused on providing low down payment options that allow you to make a 5% down payment, or even lower.

That said, with 5% down, you’ll likely have a higher monthly mortgage payment and end up accruing a lot more interest over the life of the loan. Buyers may be included in government-backed mortgage programs, such as a Federal Housing Administration (FHA) loan that may offer more favorable terms even with a low down payment.

However, other expenses such as property tax and homeowner’s insurance can be the same. Other influences can come into play when offering a 5% down payment on a house, but overall, the best decision for how much to put down depends on your personal financial situation and your future goals.

What Is the Benefit of a Larger Down Payment?

There are a variety of benefits of a larger down payment, mainly tying back to the fact that it makes you less of a risk in the eyes of the lender. Some of the potential benefits of a larger down payment include:

• Lower fees
• Lower mortgage payments
• More equity on your home
• Better mortgage interest rate

When deciding on your down payment and other housing costs, try using our home budget template to prepare your finances.

No Private Mortgage Insurance (PMI)

With a 20% or higher down payment, lenders typically don’t charge you private mortgage insurance (PMI).

PMI is a kind of insurance the lender buys in case you stop making payments and default on the loan. Borrowers who put down less than 20% have a statistically higher chance of defaulting, so PMI protects them and their investment.

PMI can cost as little as .3% of the loan or as high as 1%. That percentage is calculated on an annual basis, paid monthly or in a lump sum each year. On a $200,000 mortgage, PMI can range between $50 and $166.67 a month.

Here’s the good news – PMI doesn’t stick around forever. Some loans are structured so that PMI automatically falls off once you have 22% equity in the home. You can also refinance once you reach 20% equity to remove PMI. You can usually speed that process up by increasing the home’s value with a few minor touch-ups, like adding in landscaping or repainting the outside.

Lower Interest Rates

Lenders also typically reward larger down payments with lower interest rates. Lower interest rates can make buying a home more affordable through lower mortgage payments and in the long-term as less interest will accrue over the life of the loan. 

Keep in mind that inflation and the fluctuating house market can become a factor when determining interest rates. 

More Likely to Compete with Other Offers

If a house has multiple competing offers, the seller wants to choose the one that has the highest chance of being approved by the bank. An offer that ends up falling through is a huge hassle for a seller – especially if they want to be out of the house quickly.

A small down payment has a greater chance of being denied than a traditional 20% down payment. In a city where houses are going like hotcakes, that can be a real problem.

When to Choose a Smaller Down Payment

For many people, putting down 20% means using up most, if not all of their savings. That can quickly become a problem if your new home needs renovations you don’t have the money to cover. No one should have to make the choice between a working toilet and on-time mortgage payments.

Another time when it’s ok to put down less than 20% is if you live in a hot market, like San Francisco or Austin. In areas like this, waiting too long will ensure your eventual buying price is much higher.

If you’re living in a hot market, it can also take you a long time to save up 20%. For example, the average house value where I live in Denver is almost $500,000 – so 20% of that would be $100,000. At my current savings rate, it would take me 4.6 years to get to $100,000. If I put 5% down, I’d only need $25,000, which would take 14 months to save up.

For many millennials, putting down 20% is next to impossible thanks to stagnating salaries, student loan payments and high home prices. It can take them until their mid-30s to save 20% – time they could spend earning equity in their own home. With rent skyrocketing across the country, plenty of young people can’t bear to wait any longer.

Down Payment Options

Fortunately, those who can only afford a small down payment have a number of mortgage options. Here are some of the most common:

Fannie Mae and Freddie MacFannie Mae and Freddie Mac-backed mortgages can require as little as 3% down, and there are few barriers to getting one. At least one of the buyers must be a first-time homeowner, it must be a single-family home, the buyer must live there full-time and the mortgage has to have a fixed interest rate.

You can ask your lender about applying for a Fannie Mae or Freddie Mac-approved mortgage.

Federal Housing Authority

Many consider an FHA loan the easiest type of mortgage to apply for, due to the low credit score requirements. Geared toward low-income buyers, those who choose an FHA loan can put down as little as 3.5% – as long as they have a credit score of 580 or higher. If your credit score is between 500 and 579, you’ll have to put down 10%.

However, FHA loans come with an annual mortgage insurance premium (MIP) tacked onto your monthly payment, similar to PMI. The MIP costs between .45% and 1.05%, depending on your total mortgage amount, the size of your down payment and the term length of your loan. The MIP doesn’t fall off automatically, so borrowers have to refinance if they want it removed.

Veterans Affairs

If you’re a veteran or current service member, you may qualify for a VA loan with 0% down. You can also get your closing costs and other home-buying fees financed with your loan. Unlike FHA or other loans, VA loans don’t charge PMI or MIP fees.

Use Mint to Help You Save for Your Down Payment

Buying a home can be stressful, especially when you have to decide how much you can afford to put down on a house. For many, a house is the biggest purchase they’ll ever make, and thinking about how much is needed for down payment on a house to even get started can be intimidating. 

With the Mint app, homebuying—including saving for a down payment—can be less stressful. Mint can help homeowners find ways to save for their down payment and track their progress over time to achieve their goal of purchasing a home. Get the app today.

Sources: Consumer Finance  | National Association of REALTORS® Research Group | Statista Research Department