Home Down Payment Requirements: How Much Do You Really Need?

Most buyers don’t need 20% down. Depending on your loan type and finances, your down payment can be as low as 0–3.5%. Some government-backed programs, like VA and USDA loans, allow qualified borrowers to put nothing down, while FHA loans start at 3.5% with flexible credit guidelines. Conventional loans may accept as little as 3% for first-time buyers. Keep in mind you’ll still need funds for closing costs, inspections, and reserves, but many lenders offer down payment assistance, grants, or seller credits to help bridge the gap.

What is a down payment?

A down payment is the portion of a home's purchase price that you pay upfront, out of pocket, rather than financing through a mortgage. This money becomes your initial equity in the home, which is your ownership stake in the property from day one.

The size of your down payment can have a significant impact on your mortgage. Generally, a larger down payment means you'll borrow less money, which can lead to a lower monthly payment and less interest paid over the life of the loan. In some cases, a larger down payment may also help you qualify for a better interest rate.

On the other hand, making a smaller down payment allows you to keep more cash on hand for other homeownership expenses, such as moving costs, furniture, emergency repairs, or maintaining a savings cushion. Many first-time homebuyers choose this approach to avoid draining their savings when purchasing a home.

Example: If you're purchasing a $200,000 home and put 10% down, your down payment would be $20,000, leaving $180,000 to be financed through your mortgage. If you put 3.5% down instead, your down payment would be $7,000, allowing you to purchase the home with less money upfront.

What are the minimum down payments by loan type?

• FHA: As low as 3.5% down (Federal Housing Administration–backed).
• VA: Often 0% down for eligible service members, veterans, and some surviving spouses (subject to VA limits and guidelines).
• USDA: 0% down for eligible rural and some suburban areas (income and location limits apply).
• Conventional: As low as 3% down with qualifying credit, income, and property type. Requirements vary by lender and whether it’s a primary home, second home, or investment property.

How Does PMI Work When Buying a Home?

Private Mortgage Insurance (PMI) is a type of insurance that protects the lender if you're unable to make your mortgage payments. While PMI increases your monthly housing costs, it also makes homeownership possible for buyers who can't or don't want to make a large down payment.

One of the most common homebuying myths is that you need a 20% down payment to purchase a home. The reality is that many loan programs allow qualified buyers to put down much less. However, putting less than 20% down on a conventional loan will usually require you to pay PMI.

For example, if you're purchasing a $300,000 home and put 5% down, your lender is taking on more risk because you're financing a larger portion of the home's value. PMI helps offset that risk for the lender.

The good news is that PMI on a conventional loan isn't permanent. Once you've built enough equity in your home, you may be able to remove it. In most cases, you can request PMI removal when your loan-to-value (LTV) ratio reaches 80%, and lenders typically remove it automatically once it reaches 78%, provided your payments are current.

FHA loans have a similar requirement called a Mortgage Insurance Premium (MIP). Unlike PMI on a conventional loan, MIP may remain for the life of the loan unless you refinance into another mortgage program.

Can I use gift funds for my down payment?

In many cases, yes. Numerous mortgage programs allow homebuyers to use gift funds to cover part or even all of their down payment and, in some cases, closing costs. Gift funds can be especially helpful for first-time homebuyers who have steady income but haven't had enough time to build substantial savings.

However, lenders have specific rules regarding gifted funds. Generally, the money must come from an eligible donor, such as a family member, fiancé, domestic partner, employer, or an approved charitable organization, depending on the loan program. The funds must be a true gift, meaning the donor does not expect repayment.

To document the gift, lenders typically require a signed gift letter that includes the donor's name, relationship to the borrower, gift amount, and a statement confirming that repayment is not required. You may also need to provide documentation showing the transfer of funds, such as bank statements, deposit records, or proof that the donor had sufficient funds available to make the gift.

It's important to note that gift fund rules vary by loan type. Some programs require borrowers to contribute a portion of their own funds toward the purchase, while others may allow the entire down payment to come from a gift. There may also be restrictions on who can provide gift funds and how they can be used.

If you're planning to use gift money, be sure to discuss it with your lender early in the homebuying process. Proper documentation can help avoid delays and ensure the funds meet your loan program's requirements.

How much should I put down?

It depends on your goals, savings, and monthly budget. A quick rule of thumb: Every $10,000 more you put down lowers your monthly payment by about $50.

• If you want the lowest monthly payment, a bigger down payment can help.
• If you want more cash on hand for emergencies, you might choose a smaller down payment.
• Your loan officer can help you weigh the trade-offs for your situation.

How can I get ready to buy?

• Show consistent housing payments for 12+ months to demonstrate you can handle a mortgage.
• Pay bills on time and keep credit card balances low.
• Talk with a local loan officer early for personalized guidance.
• Use our mortgage app to track your loan and estimate payments—search TowneBank Mortgage in your app store.

Related FAQs

What costs do I pay besides the down payment?
Expect closing costs (typically 2–5% of the purchase price), prepaid taxes/insurance, and moving expenses.

Is a lower down payment more expensive over time?
Usually it means higher monthly payments and PMI, but keeping more cash may be worth it if you need reserves or plan to renovate.

When can PMI be removed?
On many conventional loans, PMI can drop off when you reach about 20–22% equity. FHA loans have different rules based on your down payment and term.

Does putting 20% down always make sense?
Not necessarily. If a larger down payment drains your savings, a smaller down payment with healthy reserves could be safer.