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Down Payment On a House: What You Need to Know

Key Takeaways:

  • The average down payment for a house purchase in the U.S. is around 6% of the loan value.
  • A house down payment can be as little as 3% depending on the borrower’s credit profile and loan type.
  • Borrowers who qualify for a USDA or VA loan may buy a home with no down payment.

Saving for a home down payment can be one of the biggest obstacles for homebuyers. Most prospective buyers believe they need 20% of the home value, but it turns out that is not the case.

How Much is a Down Payment On a House?

The average down payment on a house in the U.S. is around 6% of the loan value.

The minimum down payment on a house depends on the type of mortgage. The table below breaks down the minimum house down payment requirements.

Mortgage TypeBacked ByDown PaymentAvailable To
Conventional MortgagesNo government backing3% minimumAnyone can apply
FHA LoansFederal Housing Administration3.5% or 10%Anyone can apply
VA LoansU.S. Department of Veterans Affairs0%Veteran military service members past and current and eligible surviving spouses
USDA LoansU.S. Department of Agriculture’s Rural Development Program0%Rural and suburban homebuyers who meet the program’s requirements and income limits

The most popular loan type is a conventional mortgage.

House down payment requirements can vary between lenders. How much you can afford will depend on your income, down payment, and credit history.

For some lenders, a credit score of under 580 will require a minimum 10% deposit. Find out how to improve your credit score here.

Benefits of a Larger Down Payment

The good news is you do not have to save a large sum for a home down payment. However, there are definite benefits of saving a larger deposit for your down payment.

Having a house down payment of more than 20% means you can avoid paying personal mortgage insurance (PMI).

If your home loan down payment is less than 20%, you’ll need to pay personal mortgage insurance. It protects the lender in case of borrower default and is paid for by the borrower.

For many people, PMI payments are a part of homeownership.

Suppose you are struggling to save a 20% deposit. It could still be beneficial to get a home that you can afford as soon as possible, even if it means less of a down payment.

In the case of conventional mortgages, if your loan-to-value reaches 78% the mortgage insurance is required to drop off automatically. You can make a formal request for the mortgage insurance to be removed once your loan-to-value is 80% or less, but it remains up to your lender.

For FHA loans, the mortgage insurance could be required for a minimum number of years, regardless of your loan-to-value ratio before that timeline is met.

PMI may even be a permanent feature, requiring you to refinance into another loan product to eliminate it.

Mortgage Interest Rates

Another benefit of a higher  down payment is a lower mortgage interest rate.

When the borrower has a higher cash investment in the property, the lender takes on less risk. With the improved risk profile for the lender, they are generally able to offer a better interest rate.

Having more equity in your home also allows you to have lower repayments and more quicky pay down your principal.

Over time you can borrow against your home equity for future investments such as a rental property. How much mortgage you can afford really depends on your long-term goals both financially and for the house.

How To Get a Down Payment On a House

How much you save for a down payment will be determined by how much you can afford. Saving is only one of the options for obtaining your down payment.

There are other approved sources you may be able to use toward your home down payment and these include:

  • Gifted funds from a family member or close relative.
  • Crowdsourcing platform funds – these must be documented.
  • Down payment assistance programs with varying repayment options.
  • Cryptocurrencies – will generally need to be converted to US dollars.
  • Funds from foreign bank accounts – additional documentation and currency conversion may be required.
  • Joint accounts – will need a letter from other account holders granting access to the funds.

Determining how much you need for a down payment will depend on your personal goals and financial situation. It may make sense to buy a house as soon as you can, especially if you plan to live in it for the long run and are able to comfortably manage the ongoing payments and maintenance costs.

Never borrow more for a home than you can afford to repay. Rather aim to get as much house as you can afford for the money you are comfortable spending.

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Sources
AuthorLauren Scungio

Lauren is a mortgage professional and personal finance writer in Scottsdale Arizona. She enjoys creating interesting and educational content geared towards spreading financial literacy and helping people make the best financial decisions.

Financial information reviewed byRoss Loehr - CFP®, MBA
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Last Updated: July 19, 2022

J
Jippe
Thanks a lot for the tips in the article! I have a question. Is it possible to take out a personal loan or cash advance for the house down payment? I can cover almost the whole down payment with my savings but this amazing house was put on sale and I don't have quite enough. So I was wondering if I could cover the last few thousand dollars with a loan? Thank you!
Reply
    kimberleyStaff
    That’s a great question! In short yes, however, it really depends on your mortgage lender, some will absolutely let you use a loan as a portion of your down payment. Make sure you have enough money for the other costs associated to the closing. You will also need to make sure you have enough cash flow to cover the mortgage repayments and the loan repayments. The dream home does come up more than you think at first. It’s advisable to get all your ducks in a row so you are ready to purchase when the right house comes up again.

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