What’s a Down Payment—and How Much Do You Need to Buy a House?

A down payment is the amount of money you pay for a new house out of your own pocket, with the remaining balance covered by a mortgage. Saving up money for a down payment can be a major financial undertaking. For many, it can be an obstacle to home ownership.

However, when you learn what the average down payment for a house is, saving for one begins to feel less overwhelming. In fact, you can even qualify for a mortgage with little or no money down.

To help you on your path to buying a house, we’ll look at why down payments matter and how much you really need to save. 

Why down payments matter

Saving for a down payment is one of the first steps in how to buy a house. But your down payment will have an impact during every stage of your house buying journey, from making offers to managing payments for years to come. Some of the reasons down payments matter include:

• Qualifying for financing: Lenders will usually require you to have a minimum down payment to qualify for a mortgage. For conventional loans, the minimum is usually 3%, but some government-backed loans have 0% minimums.
• Monthly mortgage payments: The lower your down payment, the higher the principal of your mortgage loan will be, which means you’ll have to make higher monthly payments. Plus, lenders often offer lower interest rates for higher down payments, which further impacts your monthly payments.
• Presenting strong offers: In some highly competitive markets, a high down payment can help your offer stand out from others because it suggests financial stability and a lower likelihood of the deal falling through.

How much is a down payment on a house?

The average down payment for a house is just over $30,000, or 14.4%, based on recent data from the National Association of Realtors (NAR).[1] However, there’s a wide distribution in down payment amounts. The bottom 30% of down payments—which tends to include first-time homebuyers, FHA, and VA loans—averages just $8,200.

Where you live will have an especially big impact on your down payment amount. For example, in California cities like San Francisco, San Jose, and Anaheim, the average down payment is over 25%, which reflects how highly competitive those markets are.[2] On the opposite end, Virginia Beach, Virginia, Detroit, and Baltimore have the lowest average down payments nationwide, with each under 9%.

Large vs. small down payments

Choosing between taking the time to save for a large down payment versus buying a house faster with a small down payment can be difficult. There are benefits and drawbacks to both large and small down payments. Here’s how they compare.

Large down payments (20% and over)

There are many advantages of buying a house with a large down payment, which is usually considered anything over 20%. Perhaps most importantly, for conventional loans, you can avoid private mortgage insurance (PMI). This can save you around 0.5% to 2% on your total purchasing costs.

Lenders also tend to view borrowers with high down payments as lower risk, which is why they’ll often offer them better terms and interest rates. Combined with the lack of PMI, these lower interest rates can help reduce your monthly mortgage payments.

The assumption that high down payments are a sign of financial stability also extends to sellers. When making an offer on a home, a high down payment is often seen by sellers as an indication that a buyer is serious and that the deal is unlikely to fall through. In competitive markets, this can give your offer an advantage over other buyers.

However, coming up with such a large sum of money isn’t easy or even possible for all buyers and can delay homeownership for years. While you’re saving for a down payment, you might miss out on other investment opportunities. Plus, the housing market may even appreciate faster than you can save money, making the goal of a large down payment even harder to reach.

Once you’ve used that down payment to buy a house, your money will largely be tied up in your home. As a result, you may have less liquid cash on hand in case of emergencies or for other projects, like home improvements.

Small down payments (less than 10%)

With a small down payment of under 10%, you can own your home faster instead of spending years trying to save money. By getting on the property ladder sooner, you also potentially benefit more from housing values going up, at least in appreciating markets.

Having a smaller down payment means your money isn’t overly concentrated in real estate. Instead, you can use the money that you may have otherwise put down on a home to invest in a more diverse portfolio, such as stocks and bonds. Likewise, you can have money set aside for emergencies or to tackle home improvement projects.

However, a smaller down payment means you’ll likely have to make larger monthly mortgage payments. These higher payments aren’t only because your total loan amount is higher, but also because you may have to pay PMI (which could add 0.5–2% to your loan). Plus, your lender may charge a higher interest rate because borrowers with lower down payments are seen as higher risk.

Even if you do get a good deal on your interest rate, the amount of interest you pay over the entire term of your loan will likely be higher than if you’d had a high down payment. For example, if you’re purchasing a $500,000 home and paying a 6% interest rate on a 30-year loan with 25% down, your total interest paid would be just over $707,000. That’s already high, but with just 10% down, your total interest balloons to over $1.08 million.

And when you’re buying a house, your lower down payment could put you at a disadvantage. In highly competitive markets, sellers may look at low down payments as a sign that an offer is more likely to fall through.

Down payment minimum requirements by loan type

Contrary to popular myth, a 20% down payment isn’t required to buy a house. Although, if you’re applying for a conventional loan, a 20% down payment will allow you to avoid having to pay for PMI. For a conventional mortgage, you can qualify with as little as 3% down.

Other loan types have a lot more range in minimum down payment requirements. Government-backed loans and first-time homebuyer programs, such as FHA, VA, and USDA loans, have down payment requirements as low as 0%, but they’re only open to eligible applicants.

On the other hand, loans for investment and second properties tend to be the highest, with minimums often above 20%. However, that rate will be affected by whether the property will be owner-occupied.

Tips for building your down payment

Saving for a down payment can be challenging, especially if housing prices are rising rapidly in your area. However, there are some tips you can use to help build up your down payment and get on the property ladder sooner.

• Set a savings goal: Calculate how much you can realistically set aside per month and, based on that amount, how long it will take you to reach a down payment amount you’re comfortable with. While you may want to get a 20% down payment, it may make more sense to settle for a lower goal to buy faster.
• Tap into investments: Many homebuyers choose to tap into investments, such as by selling stocks to buy a house. Similarly, you can use your 401(k) or IRA for a down payment. However, be aware that there are risks to using investments for down payments, including tax implications and potential lost returns.
• Reduce expenses and increase income: If you can, try to cut down on your discretionary spending, such as subscriptions, food and grocery delivery apps, and eating out. You may also want to consider taking on freelance or gig work to help you save more aggressively.
• Improve your credit score: Your credit score is a major factor in your eligibility for home loans. While saving for a down payment, focus on paying bills on time and reducing your overall debt. Lenders typically offer better interest rates and terms—including lower down payment requirements—to borrowers with good credit scores.
• Consider alternatives to conventional loans: Most buyers choose conventional mortgages without considering other options. For example, first-time homebuyer programs and government-backed loans tend to have much lower down payment requirements.

When you’re ready to take the next step on your home buying journey, Clever is there to help. Our team of licensed experts can assist you with your real estate questions and connect you with a top realtor in your area to help you find your dream home.