As little as nothing on a VA or USDA loan, 3% on some conventional loans, 3.5% on FHA, and 20% only if you want to avoid mortgage insurance entirely; the 20% figure everybody quotes is a way to avoid a fee, not a requirement.
The belief that you need 20% keeps more people renting than any other single idea about buying, and it has not been true for a long time. What 20% actually buys is the removal of mortgage insurance and, usually, a slightly better rate.
The minimums
- VA loan: 0%, for eligible service members, veterans and some surviving spouses. No monthly mortgage insurance either, though there is a one-time funding fee.
- USDA loan: 0%, in eligible rural and some suburban areas, with income limits.
- Conventional: 3% on the first-time and low-down-payment programmes, 5% commonly otherwise. Private mortgage insurance applies below 20%.
- FHA: 3.5% with a score of 580 or above. FHA mortgage insurance usually lasts the life of the loan unless you refinance out of it.
What a smaller deposit costs
Three things: mortgage insurance every month until you reach the threshold to remove it, a larger loan and therefore a larger payment and more interest over its life, and a smaller cushion if prices fall.
Against that, the cost of waiting. Saving another five percent takes time, and in that time the price of the house and the rate can both move. The honest comparison is not deposit against deposit, it is the total monthly cost of buying now against renting for as long as it takes to save more.
Do not forget the other cash
Closing costs run roughly 2% to 3% of the price on a financed purchase, on top of the deposit, and they are cash at signing. Lenders also want to see reserves, meaning money left over afterwards, and moving into a house costs more than people budget for.
Down payment assistance programmes exist in most states, usually for first-time buyers under an income limit, and they are administered locally rather than nationally. The state housing agency is where to look rather than a search engine.
Questions people ask
Do you need 20% down to buy a house?
No. Twenty percent avoids private mortgage insurance on a conventional loan and usually earns a slightly better rate. Loans at 0%, 3% and 3.5% down exist and are ordinary.
How much is the down payment on a $400,000 house?
At 3% it is $12,000, at 3.5% it is $14,000, at 5% it is $20,000 and at 20% it is $80,000. Add roughly $8,000 to $12,000 of closing costs to any of them.
Can the down payment be a gift?
Usually yes, from a family member, with a signed gift letter saying it is not a loan, and with the money traceable through your account. Every programme has its own rules on who may give it and how much.