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A down payment is the portion of a home's purchase price that you pay upfront out of pocket — the part that is not financed by your mortgage. If you buy a $400,000 home and put down $40,000, your down payment is 10% and your mortgage covers the remaining $360,000.
Your down payment size affects several things at once: your loan amount, your monthly payment, your interest rate, and whether you are required to carry private mortgage insurance. It is one of the most discussed parts of buying a home — and one of the most misunderstood, largely because of the persistent belief that 20% down is required. It is not. Most buyers today put down far less, using loan programs specifically designed to make homeownership accessible with smaller upfront amounts.
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How a down payment works
When you buy a home with a mortgage, you and your lender are splitting the purchase price. Your down payment is your share upfront. Your mortgage covers the rest, and you repay it over time with interest.
The relationship between your down payment and your loan amount determines your loan-to-value ratio (LTV) — a percentage lenders use to assess risk and set your rate. A $360,000 loan on a $400,000 home produces an LTV of 90%. A $320,000 loan on the same home produces an LTV of 80%. The lower your LTV, the less risk the lender takes on — and that shows up in your rate and your insurance requirements.
For a full explanation of what does down payment mean in the context of your mortgage application, Better's FAQ covers the definition in plain terms.
Minimum down payment by loan type
The minimum down payment you need depends on the type of loan you use. Here is a breakdown of standard minimums:
| Loan type | Minimum down payment | Notes |
|---|---|---|
| Conventional | 3% | PMI required until 20% equity |
| FHA | 3.5% | Requires 580+ credit score; MIP applies regardless of down payment |
| VA | 0% | For eligible veterans, active-duty service members, and surviving spouses; no PMI |
| USDA | 0% | For eligible rural and suburban properties; income limits apply |
| Jumbo | 10–20% | Varies by lender and loan size; stricter qualification standards |
For a full breakdown of FHA-specific requirements, see FHA loan down payment in Better's FAQ. If you want to explore whether 0% down is possible for your situation, see Better's guide on how to buy a house with no down payment.
Does putting 20% down really matter?
The short answer is no — 20% is not a requirement. It is a threshold. Specifically, it is the point at which private mortgage insurance (PMI) is no longer required on a conventional loan.
PMI is an insurance policy that protects your lender — not you — if you default. On a conventional loan with less than 20% down, lenders require PMI because your lower equity means they have more exposure. It adds to your monthly payment, typically between 0.5% and 1.5% of the loan amount per year, and it stays in place until your equity reaches 20%. Once you hit that threshold — through paydown, appreciation, or a combination — you can request its removal. See how to get rid of PMI for the exact steps.
The 20% figure became cultural shorthand because it is the point where PMI disappears and LTV-based rate tiers become most favorable. But the math only makes sense to put 20% down if you actually have it and it makes sense for your financial situation. Putting 20% down when it wipes out your emergency fund or leaves you without reserves for closing costs can put you in a worse position than putting 10% down and keeping more liquid savings.
How down payment size affects your rate
Lenders price mortgage rates in tiers based on LTV. A buyer at 75% LTV typically receives a better rate than the same buyer at 90% LTV. The difference is not always large, but on a $350,000 loan over 30 years, a 0.25% rate difference adds up to thousands of dollars.
Here is how the same home looks with different down payment amounts:
| Down payment | % down | Loan amount | LTV |
|---|---|---|---|
| $12,000 | 3% | $388,000 | 97% |
| $20,000 | 5% | $380,000 | 95% |
| $40,000 | 10% | $360,000 | 90% |
| $80,000 | 20% | $320,000 | 80% |
Example based on a $400,000 purchase price. For illustrative purposes only. Actual loan amounts, rates, and payments vary by borrower profile and loan program.
PMI — what it is and when it applies
PMI is required on conventional loans when your LTV is above 80%. FHA loans have a different version called mortgage insurance premium (MIP), which applies regardless of your down payment amount and typically lasts for the life of the loan. VA loans have no monthly mortgage insurance at any down payment level — one of the most meaningful financial benefits of VA eligibility. Understanding what is mortgage insurance helps you compare the true monthly cost of different loan types side by side.
Where can your down payment money come from?
This is one of the most important questions first-time buyers have — and the answer is broader than most people expect.
Personal savings. The most common source. Most lenders want to see the funds in your account for at least 60 days (called seasoning) to confirm they are not borrowed.
Gift funds. Family members can contribute to your down payment. Gift fund rules vary by loan type: conventional loans allow partial gifts; FHA and VA loans allow the entire down payment to be gifted. The donor typically needs to provide a gift letter confirming the funds are not a loan. Jumbo loans have more variable gift fund policies.
Down payment assistance programs. Many state and local governments offer grants or forgivable loans specifically to help buyers cover down payments and sometimes closing costs. Eligibility varies by income, location, and first-time buyer status. Down payment assistance covers the main program types and how to find what is available in your area.
Proceeds from selling your current home. If you are an existing homeowner, the equity from your sale can go directly toward your next down payment. The timing of your sale and your new purchase matters — your lender will want documentation of the funds.
Liquidating investments. Taxable brokerage accounts, stocks, and bonds can be liquidated and used as a down payment. Be aware of any capital gains tax implications before doing so.
What cannot be used. Borrowed funds — including personal loans, credit card advances, or informal loans from family — generally cannot be used as a down payment. Lenders verify the source of your funds precisely to screen out borrowed money disguised as savings. Earnest money paid earlier in the transaction is typically credited at closing and reduces the cash you bring on closing day.
How much down payment should you put down?
There is no universal right answer. The best down payment for you depends on your savings, your cash flow needs, and how long you plan to stay in the home. Here is a framework:
Put down less if:
- Putting more down would leave you without emergency savings or reserves
- You need cash to cover closing costs (typically 2–5% of the loan amount)
- You qualify for a program that makes a low down payment advantageous (VA, USDA, first-time buyer assistance)
- You expect home values to rise and plan to build equity through appreciation
Put down more if:
- You have sufficient savings remaining after the down payment for reserves and closing costs
- Eliminating PMI from day one is a priority
- A lower monthly payment meaningfully improves your financial stability
- You are on a tight qualification margin and a lower loan amount helps your debt-to-income ratio
For a deep dive into the numbers at different purchase prices, see Better's guide on how much down payment for a house. If you are still in the savings phase, how to save for a house covers practical strategies for building your down payment fund.
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FAQ
What is a down payment on a house and why do you need one?
A down payment is the upfront, out-of-pocket portion of a home's purchase price — the amount you pay that is not covered by your mortgage. Lenders require it because it reduces their risk: a buyer with skin in the game is less likely to default. It also establishes your starting equity in the home and affects your loan amount, interest rate, and monthly payment. For the formal definition, see what does down payment mean.
How much of a down payment do I need to buy a house?
It depends on your loan type. Conventional loans can start as low as 3% down. FHA loans require at least 3.5% with a 580+ credit score. VA and USDA loans allow 0% down for qualifying borrowers. Jumbo loans typically require 10–20%. The specific amount also depends on the purchase price of the home. See the full breakdown in Better's guide on how much down payment for a house.
Do I really need to put 20% down to buy a home?
No. 20% is the threshold at which PMI is no longer required on a conventional loan — it is not a universal requirement. Most first-time buyers put down far less. The right down payment depends on your savings, loan type, and financial situation, not a fixed rule.
Can I use gift money from my family for a down payment?
Yes, in most cases. FHA and VA loans allow the entire down payment to be gifted. Conventional loans allow partial or full gifts depending on the down payment amount and loan program. The donor must provide a signed gift letter confirming the money is a gift and not a loan. Jumbo loan gift fund policies vary by lender.
What happens if I put less than 20% down on a house?
On a conventional loan, putting less than 20% down typically requires private mortgage insurance (PMI). PMI is added to your monthly payment and protects the lender if you default. It can be removed once your equity reaches 20%. On an FHA loan, mortgage insurance premium (MIP) applies regardless of down payment size.
Are there programs that can help me with my down payment?
Yes. Many state, county, and city programs offer grants, forgivable loans, or low-interest second mortgages to help buyers cover their down payment and sometimes closing costs. Eligibility typically depends on income, location, and whether you are a first-time buyer. See Better's guide to down payment assistance for the main program types and how to find options in your area.
What is the difference between a down payment and closing costs?
A down payment is the portion of the home's purchase price you pay upfront. Closing costs are the fees paid to your lender and third parties to originate and close the loan — things like appraisal fees, title insurance, and origination charges. Both are due at closing, but they are separate amounts. What are closing costs covers the full breakdown of what is included and how much to expect.
The bottom line
A down payment is the upfront share of the purchase price you bring to the table — and you have far more flexibility than the 20% myth suggests. Conventional loans start at 3% down. FHA loans start at 3.5%. VA and USDA loans offer 0% for eligible borrowers. The right amount depends on your loan type, your savings, and what keeps you financially stable after closing.
If you are still building your down payment, programs exist to help. If you are ready to buy, getting pre-approved shows you exactly what you qualify for at your current savings level — and gives you a clear picture of your monthly payment before you start shopping.
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