Down Payment
A down payment is the portion of the home's purchase price you pay upfront, with the mortgage covering the rest. Common down payment amounts range from 3% (conventional) to 3.5% (FHA) to 20% (to avoid PMI). VA and USDA loans offer 0% down payment options for eligible borrowers. The more you put down, the smaller your loan and monthly payment.
On a $400,000 home, a 3.5% FHA down payment is $14,000; a 20% conventional down payment is $80,000. The larger down payment eliminates private mortgage insurance (PMI), which can cost $100–$300/month on a $400,000 loan. However, tying up $80,000 in home equity has an opportunity cost — those funds could be invested elsewhere.
Down payment assistance programs (DAPs) from state and local housing finance agencies can provide grants or low-interest second loans to cover down payments for qualifying buyers. Income limits, purchase price limits, and first-time buyer requirements vary by program. Many programs are underutilized because buyers don't know they exist — ask your loan officer about programs in your state.
Gift funds from family members are an acceptable source for down payments on most loan types. The donor must provide a gift letter stating the money is not a loan and doesn't need to be repaid. Large cash deposits in your bank account within 60–90 days of application will be scrutinized ('sourced and seasoned'), so plan ahead.
Key Takeaway
A down payment is the portion of the home's purchase price you pay upfront, with the mortgage covering the rest. Common down payment amounts range from 3% (conventional) to 3.5% (FHA) to 20% (to avoid PMI). VA and USDA loans offer 0% down payment options for eligible borrowers. The more you put down, the smaller your loan and monthly payment.
Related Terms
Frequently Asked Questions
As low as 0% for VA and USDA loans, 3% for conventional (HomeReady/Home Possible), 3.5% for FHA (with 580+ credit score), and 10% for FHA with 500–579 credit score.
It depends on your rate of return on investments versus your mortgage rate, and how much PMI would cost. Many financial advisors suggest putting down what you need to comfortably qualify, then keeping reserves.
Yes, on most loan types. The donor must provide a gift letter confirming it's not a loan. Some programs require you to contribute a minimum amount of your own funds.
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