Down Payment

Your down payment is the portion of the home's purchase price you pay upfront in cash, with the remainder financed through your mortgage. Despite the common belief that 20% is required, many loan programs allow down payments as low as 3%–3.5%. A larger down payment lowers your loan amount, your monthly payment, and — if it crosses the 20% threshold — eliminates the need for PMI.

The down payment is the single biggest lever you control when shopping for a home, because it directly determines how much you need to borrow.

The 20% myth

A lot of buyers assume they need 20% down to buy a home. That's not true. Conventional loans often allow as little as 3% down for qualified first-time buyers, FHA loans allow 3.5% down, and VA/USDA loans can allow 0% down for eligible buyers. The 20% figure matters for one specific reason: it's the threshold below which lenders require PMI on conventional loans.

The real tradeoff

Putting down less money means a larger loan, which means a higher monthly payment and more interest paid over the life of the loan — plus PMI if you're under 20% on a conventional loan. Putting down more money reduces all of that, but ties up more of your cash that could otherwise go toward closing costs, moving expenses, or a financial cushion after the purchase.

Where down payment money comes from

Common sources include personal savings, a gift from a family member (lenders typically require a "gift letter" documenting it isn't a loan), proceeds from selling a previous home, retirement account withdrawals (with tax implications to consider), and down payment assistance programs for eligible buyers.

How it interacts with your rate

A larger down payment lowers your loan-to-value (LTV) ratio, which lenders view as lower risk — this can translate into a slightly better interest rate offer, on top of the payment savings from borrowing less.

Key facts

20% down is not required — many programs allow 3%–3.5%, and some allow 0%
Down payments below 20% on a conventional loan typically trigger PMI
A larger down payment lowers your loan amount, monthly payment, and total interest paid
Common sources: savings, gifts (with a gift letter), home sale proceeds, assistance programs

Frequently asked questions

Do I really need 20% down to buy a house?

No. Many conventional loans allow 3% down, FHA allows 3.5%, and VA/USDA loans can allow 0% down for eligible buyers. 20% just avoids PMI on a conventional loan.

Can someone gift me my down payment?

Yes, but lenders typically require a signed gift letter confirming the money is a gift, not a loan, and may ask for documentation of the gift-giver's ability to provide it.