How Much is a Down Payment For a Mortgage?

Do you really need a 20% down payment to buy a home? If you're thinking of buying a home, here's everything you'll need to know about down payment requirements for a mortgage.

For many people, coming up with a down payment for a mortgage is one of the biggest barriers to homeownership. This is particularly true in today's real estate market, where a 20% down payment can often be far more than the average American earns in a single year.

Now, some good news: Down payment requirements for a mortgage may be far more flexible than you imagine.

Here are answers to some of the biggest questions aspiring homebuyers have about down payment requirements, plus tips to help you make your dream of homeownership a reality.

What's a down payment?

A down payment is a part of the purchase price for a property that you pay for upfront instead of financing it with a mortgage loan. Typically, this amount is expressed as a percentage of the purchase price.

A down payment for a mortgage serves a few purposes. It reduces risk for the lender, which means they can qualify more borrowers and offer them better terms. It also reduces the size of the loan, providing more affordable monthly payments for the borrower. Even though a down payment may seem like a roadblock to homeownership, it can have a positive impact.

How much is a down payment on a house?

Traditionally, the standard down payment for a mortgage has been 20% or more of a home's purchase price. While this may change based on a few factors—which we'll discuss later—20% down is a good baseline to keep in mind.

Is a 20% down payment necessary?

Many prospective homebuyers wonder if getting a mortgage with a lower down payment is possible. The short answer is yes—while every lender has their own requirements, homebuyers with excellent credit scores often qualify for a mortgage with a smaller down payment.

Even if your credit score is less than perfect, you may still qualify for a smaller down payment with a government-backed mortgage program. One example is an FHA loan, which is a type of home mortgage that's issued by an approved lender and insured by the Federal Housing Administration, or FHA.

What's the down payment on an FHA loan?

Thanks to lower down payment requirements, FHA home loans are a popular choice for many homebuyers. Depending on the lender, borrowers with a credit score of 580 or higher may qualify to make a down payment as low as 3.5% of their home's purchase price. In some cases, borrowers with a credit score as low as 500 may qualify if they have a larger down payment.

It's important to note, however, that in all cases borrowers will have to purchase the FHA's mortgage insurance. The current upfront premium for that is 1.75% of the base loan amount, which will be due when closing on the mortgage.

Check out our guide to FHA loans to learn more about the pros, cons and eligibility requirements.

Can I buy a house with no money down?

There are a few programs that allow qualified buyers to purchase a home without a down payment. Loans backed by the US Department of Veterans Affairs, or VA, allow active service members and veterans to purchase a primary residence with no money down and without a mortgage insurance requirement. Typically, VA loans offer great interest rates and limited closing costs, potentially saving borrowers thousands of dollars over the life of the loan.

For borrowers in eligible rural areas, USDA loans may be another option. The US Department of Agriculture, or USDA, backs loans that make purchasing a primary residence more affordable for low- to moderate-income borrowers in specified areas. USDA loans don't require a down payment or mortgage insurance, but they do require the payment of an annual guarantee fee, which can be included in the monthly loan payment.

What are the benefits of making a large down payment?

Saving for a down payment of 20% or more may seem burdensome, but doing so comes with some significant financial benefits.

For starters, lenders often consider a loan with less than 20% down a riskier proposition. As a result, buyers unable to put 20% down must carry private mortgage insurance, also known as PMI. A 20% down payment means you'll avoid paying this additional monthly fee.

A larger down payment for a mortgage can also help you qualify for a lower interest rate, which can save you tens of thousands of dollars in interest payments over the life of your loan. Use our mortgage comparison calculator to see how much the difference could be.

Are there down payment assistance programs?

Yes. Many lenders—including First Citizens—offer down payment assistance programs for first-time homebuyers, military service members and public service workers (such as teachers and healthcare workers). Each lender will have their own rules and eligibility requirements.

Many state, county and city governments provide some form of down payment assistance as well—often in the form of grants, second mortgage loans with low or zero interest rates, or tax credits. To explore your options, speak with a mortgage banker—they can help you find programs you might qualify for.

You owe it to yourself to get more information from potential lenders now, even if you're still deciding whether you're ready to enter the housing market.

Are closing costs included?

When buying a home, you should also be prepared to pay closing costs, sometimes referred to as settlement costs. These upfront fees aren't part of your down payment and may include the following:

• Loan origination fees
• Government recording costs
• Appraisal fees
• Credit report fees
• Lender origination fees
• Title services fees
• Tax service fees
• Survey fees
• Attorney fees

How much are closing costs?

Fees will vary depending on your location and your lender, with the typical tab for closing costs falling between 3% to 6% of the purchase price of your home. For example, on a $200,000 home, you might pay anywhere from $6,000 to $12,000 in closing costs.

A portion of these fees is paid to third-party providers, and the Consumer Financial Protection Bureau strongly recommends shopping around in order to get the best deal.

Can I use retirement savings to buy a house?

It's possible to use some or all of the funds from a retirement account for a down payment. However, be aware that different retirement accounts have different rules, timelines and limits.

Traditional IRA

First-time homebuyers can withdraw up to $10,000 from their traditional individual retirement account, or IRA, for a down payment without incurring an early withdrawal penalty. However, you'll have to pay income taxes on the withdrawal.

Roth IRA

If you've been contributing to a Roth IRA for at least 5 years, you can withdraw those contributions (but not the earnings) penalty- and tax-free.

401(k)

If you withdraw money from a 401(k), you'll have to pay income tax on the withdrawal, and you'll pay a penalty if you're younger than 59½. If you use the money to buy a house, however, some plans may consider this a hardship distribution and waive the early withdrawal penalty. You should always check with your employer's plan administrator to confirm the rules prior to making any withdrawal.

Alternatively, some 401(k) plans may allow you to take a loan from your account, which you'll need to pay back with interest. You may have up to 5 years to pay this back—or less, depending on your plan's rules. Also, if you were to leave your job or get laid off, you'd likely have to repay the loan within a specified period.

It's important to note that withdrawing or borrowing money from your retirement savings will have short- and long-term financial consequences. It's strongly recommended that you consult a financial advisor to determine if this is a good option for you.

What other options do I have?

A piggyback loan could be one strategy to consider. You may be able to avoid paying PMI by working with your lender to source a second loan that will give you enough money for that 20% down payment. Just be sure that the interest you'll pay on this second loan is less than the monthly mortgage insurance amount you'd have to pay with just the first mortgage.

Key takeaways

• While a 20% down payment for a mortgage offers many benefits, it shouldn't be a barrier to achieving your goal of homeownership.
• Depending on a few factors—including your credit score, your lender and your loan type—you may be able to purchase a home with a much smaller down payment.
• Talk to a mortgage banker or financial advisor to help you determine the down payment amount that makes sense for your situation.

For additional insight, be sure to take a look at our step-by-step guide to buying a home. And once you're ready to explore your borrowing options, learn more about how to shop for a mortgage.