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Mortgages & financing

Down Payment

In short

A down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

Common range
3% to 20%+ of the price
Avoids PMI at
20% on conventional loans
When paid
At closing
Investment property
Often 15% to 25%+

How much you need

Minimums depend on the loan program. Some conventional loans allow as little as 3% down, FHA loans allow low down payments for qualifying borrowers, and VA and USDA loans may allow zero down. Investment properties and hard money loans usually require much more. Lender requirements change, so confirm current minimums.

Why a bigger down payment helps

More down means a lower loan-to-value ratio, a smaller loan, lower monthly payments, and often a better rate. At 20% on a conventional loan, you avoid PMI. It also gives you immediate equity.

Sources of down payment funds

Savings, gift funds from family (with a gift letter), down payment assistance programs and proceeds from selling another home are common sources. Lenders verify where the money came from, so large unexplained deposits can cause delays.

The formula

Down payment = Purchase price × Down payment %
Try it in the Home Affordability Calculator →
Example

Comparing 5% and 20% down

On a $350,000 home, 5% down is $17,500 and leaves a $332,500 loan, with PMI. 20% down is $70,000 and leaves a $280,000 loan with no PMI. At 6.5% for 30 years, principal and interest is about $2,102 with 5% down versus $1,770 with 20% down, before PMI, taxes and insurance.

Down Payment vs. Earnest Money

Down Payment

A down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

Earnest Money

Earnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.

The differenceEarnest money is a smaller good-faith deposit made when your offer is accepted; the down payment is the full upfront equity paid at closing, with earnest money credited toward it.

Frequently Asked Questions

Related terms

Private Mortgage Insurance (PMI)Mortgages & financingPrivate mortgage insurance (PMI) protects the lender, not the borrower, if a borrower defaults on a conventional loan. It is usually required when the down payment is less than 20% of the home's value.Loan-to-Value Ratio (LTV)Mortgages & financingLoan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.Closing CostsBuying & closingClosing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.Home EquityMortgages & financingHome equity is the portion of a property you own outright: its current market value minus everything owed on it. It grows as you pay down the loan and as the home's value rises.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.Debt-to-Income Ratio (DTI)Mortgages & financingDebt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments. Lenders use it to decide how large a mortgage payment you can afford.MortgageMortgages & financingA mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.FHA 203(k) LoanMortgages & financingAn FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.

Learn more in the knowledge base

How Much House Can You Afford?Guide · 6 min readThe right price is the one you can pay every month without strain and still keep savings for repairs and emergencies. This guide shows how lenders measure affordability, what they leave out, and how to build a budget that works for you.Documenting Your Funds: Pre-Approval Letters, Proof of Funds and Lender LettersGuide · 7 min readSellers want evidence that you can pay before they accept your offer, and many bank and auction sellers require it. The right document depends on how you are paying. This guide matches documents to purchase types, explains what makes each one credible and shows how to share financial statements without exposing more than you need to.How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.