What is a Down Payment on a House
A down payment is the upfront cash a homebuyer pays toward the purchase price of a home — expressed as a percentage of the total price — with the mortgage loan covering the remaining balance.
A down payment is the initial cash payment a buyer makes toward the purchase of a home. The remainder of the purchase price is financed with a mortgage loan. Down payments are expressed as a percentage of the total purchase price — for example, a 20% down payment on a $400,000 home is $80,000.
How much you put down affects your loan amount, monthly payment, whether you'll pay PMI, your interest rate, and how much home equity you start with.
Minimum Down Payment Requirements by Loan Type
Different mortgage programs have different minimum down payment requirements:
| Loan Type | Minimum Down Payment | Notes |
|---|---|---|
| Conventional (conforming) | 3% | Requires PMI below 20% |
| FHA Loan | 3.5% (with 580+ credit) | Requires mortgage insurance premium |
| VA Loan | 0% | Veterans and active military only |
| USDA Loan | 0% | Rural/suburban areas, income limits apply |
| Jumbo Loan | 10–20% typically | Higher loan amounts, stricter requirements |
Why 20% Down Is Often Recommended
Putting 20% or more down eliminates the need for private mortgage insurance (PMI) — a monthly cost that typically adds 0.5–1.5% of the loan amount per year. On a $350,000 mortgage, that's $145–$437 per month in additional cost until you reach 20% equity.
Beyond avoiding PMI, a larger down payment:
- Reduces your loan balance and monthly payment
- Results in a lower loan-to-value ratio, which can mean a slightly better interest rate
- Provides immediate equity cushion against market value declines
- Makes your offer more competitive in some markets
The Trade-Off of a Large Down Payment
A 20% down payment isn't always the right choice. Putting a large sum into a home means:
- Less liquidity — that cash is tied up in home equity, not accessible without a loan or sale
- Delayed home purchase — saving for 20% in a rising market can leave you further behind
- Opportunity cost — the same funds invested in a diversified portfolio could grow over time
Many financial planners suggest a middle path: put 10% down to reduce PMI impact, maintain an emergency fund, and invest the remaining savings. The right balance depends on your interest rate, PMI cost, investment return expectations, and personal financial situation.
Down Payment Assistance Programs
For buyers who struggle to save enough, numerous assistance programs exist:
- State and local housing finance agencies — many offer grants or low-interest second loans for first-time buyers
- HUD-approved housing counselors — can identify programs available in your area
- FHA loans with gift funds — the entire down payment can be a gift from a family member
- Employer assistance — some employers offer homebuying assistance as a benefit
The U.S. Department of Housing and Urban Development (HUD) maintains a state-by-state directory of housing assistance resources.
Buyers who can’t yet save a traditional down payment might also explore house hacking — buying a multi-unit property and renting out units to offset costs — or a rent-to-own agreement as a path toward eventual ownership.
Down Payment vs. Closing Costs vs. Earnest Money
These three are often confused:
| What It Is | When It's Paid | |
|---|---|---|
| Earnest money | Good faith deposit at offer | Immediately at contract signing |
| Down payment | Equity portion of purchase price | At closing |
| Closing costs | Fees and prepaid expenses | At closing |
The earnest money deposit is typically credited toward the down payment at closing — it's not an additional expense. But closing costs are separate from the down payment and represent an additional cash need of 2–5% of the loan amount.
Your total upfront cash needs = Down payment + Closing costs - Earnest money already paid.