While the typical conventional down payment for a home is 20%, the percentage you put down is not set in stone. Of course, the larger the down payment, the more stable your offer can appear and potentially entice sellers to accept your offer. This guide covers all the key factors to consider when determining the ideal down payment for your future home.

What is a Down Payment?

A downpayment is the cash amount you pay upfront when you are purchasing a home, typically calculated as a percentage of the price. As this amount is usually a percent of the purchase price, a less expensive home will result in a lower down payment and a higher priced home- a larger down payment.

Down payment percentages are flexible, but they can alter your monthly payment, interest rate, and total interest paid on the loan term.

What is the Minimum Down Payment?

Depending on your home price and loan type, the down payment required will vary. For some loans, such as USDA and VA loans, there is no minimum requirement for a down payment.

However, to give you an idea, according to the National Association of Realtors, the typical down payment in 2023 for first-time home buyers and repeat buyers was 8% and 19%, respectively.

Down Payment Percentages Change Based on Loan Type

Conventional Loans

The downpayment on conventional loans can be as low as 3-5%, but the traditional rate is closer to 20%. However, having a lower down will alter your monthly payments and total interest paid over term.

Additionally, if your downpayment is less than 20%, you’ll be required to pay Private Mortgage Insurance (PMI), which is a safety net that protects the lender in case you default on the loan.

Let’s look at some scenarios to compare how your down payment changes your monthly payments and total loan cost.

5% down payment on $400,000 home at interest rate of 6% over 30 years

  • $20,000 down
    • $2,280 monthly payment (principal & interest only)
    • ~$350 monthly PMI
    • $820,000 total loan cost (over 30 years)

20% down payment on $400,000 home at interest rate of 6% over 30 years

  • $80,000 down 
    • $1,920 monthly payment (principal & interest only) 
    • $690,000 total loan cost (over 30 years)

FHA Loans

For FHA loans, which are backed by the Federal Housing Administration, the minimum down payment is usually much lower, often around 3.5% with a credit score of at least 580. 

While these seem like low percentages, there are also more rigorous inspections and qualifications needed to close an FHA loan. These loans also require Mortgage Insurance Premiums (MIP), which are similar to PMI and are required regardless of the down payment amount. 

Examples: 

3.5% downpayment on $400,000 home at interest rate of 6% over 30 years 

  • $14,000 down
    • $2314 monthly payment (principal & interest only) 
    • ~$278 monthly MIP
    • $833,000 total loan cost (over 30 years)

10% downpayment on $400,000 home at interest rate of 6% over 30 years 

  • $40,000 down
    • $2,158 monthly payment (principal & interest only) 
    • ~$244 monthly MIP
    • $697,000 total loan cost (over 30 years)

Jumbo Loan

Since jumbo loans can’t be guaranteed by Government-Sponsored Enterprises (GSEs), lenders typically require higher down payments to offset their risk. Most lenders ask for a minimum down payment of 10% of the home’s value, though some may require as much as 30%.

If your down payment is less than 20%, you’ll likely need to pay for PMI until you have at least 20% equity in your home.

10% downpayment on $400,000 home at interest rate of 7% over 30 years 

    • $40,000 down
      • $2,395 monthly payment (principal & interest only) 
      • ~$244 monthly MIP
      • $862,000 total loan cost (over 30 years)

30% downpayment on $400,000 home at interest rate of 7% over 30 years 

  • $120,000 down
    • $2,192 monthly payment (principal & interest only) 
    • $486,770 total cost of mortgage

Investment Property Loan

Loans for investment properties, including rental homes or residential properties with multiple units, often have stricter requirements compared to loans. These properties are perceived as higher risk because they rely on rental income, so the down payment usually ranges from 15% to 25%.

The exact percentage varies based on the lender and the borrower’s credit score. Higher down payments can lead to better loan terms and interest rates.

USDA Loan

Backed by the U.S. Department of Agriculture’s Rural Development program, USDA loans are another option that don’t require a minimum down payment. Though these loans do not have PMI, they include an upfront guarantee fee and an annual fee, serving the same protective purpose for lenders.

VA Loan

Backed by the U.S. Department of Veterans Affairs, VA loans are available to veterans and active military members as well as eligible surviving spouses. They have a 0% minimum downpayment and don’t require PMI. However, they do have a funding fee that is typically paid upfront or included in the loan amount.

Benefits of a Larger Down Payment

If you’re able to make a larger down payment, you’ll experience some significant benefits, including:

  • Better interest rates
  • Increased home equity upfront
  • Lower monthly payments
  • Lower total loan cost
  • Avoid PMI
  • Greater loan approval odds
  • More attractive offer to sellers

How Much Should You Put Down on a House?

Every home is different, and so is every offer. The amount you choose to put down will largely depend on your personal finances and priorities. You don’t want to bite off more than you can chew, so it’s important to take all the costs associated with homeownership into account before making an offer.

There are certain questions to ask when buying a home, and we want to make sure you always feel confident in your answers. From factoring in seller concessions to acquiring a proof of funds letter to get a mortgage preapproval, Movoto is here to help you learn about the process of becoming a homeowner. 

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