Down payment requirements by loan type

How much you put down on a loan affects almost everything else about it — monthly payment, interest rate, whether you'll pay mortgage insurance, and how soon you build equity. Most borrowers don't realize how many minimum down payment options exist or how the right choice depends on more than just "the bigger the better." This guide explains down payment requirements for the main loan types and the trade-offs that come with each option.

Why down payment matters

A down payment serves three purposes:

• Reduces lender risk. A bigger down payment means the lender has more equity cushion if the borrower defaults and the property must be sold to recover the loan.
• Reduces what you owe. Every dollar of down payment is one less dollar you finance — which means less monthly payment and less total interest.
• Builds immediate equity. The day you close, you have positive equity equal to your down payment (minus closing costs). This protects against being underwater if property values drop.

However, the optimal down payment is not always "as much as possible." Spending all your cash on a down payment can leave you without an emergency fund, repair money, or moving expenses — which can lead to higher-interest credit card debt later.

Mortgage down payment requirements

Conventional loans (Fannie Mae / Freddie Mac)

• Minimum: 3% down for first-time home buyers under certain programs (e.g., Fannie Mae's HomeReady).
• Standard: 5% down for most borrowers.
• No PMI: 20% down required to avoid private mortgage insurance.
• Maximum loan amount: Limited to conforming loan limits (varies by county, typically $766,550 in most areas as of recent data).

FHA loans

• Minimum: 3.5% down with credit score 580 or higher.
• Lower credit: 10% down required for credit scores between 500 and 579.
• Mortgage insurance premium (MIP) required regardless of down payment.
• MIP for loans with under 10% down is required for the life of the loan.
• Loan limits vary by county.

VA loans (for eligible veterans, service members, spouses)

• Minimum: 0% down for eligible borrowers.
• No PMI required.
• VA funding fee applies (1.4–3.6% of loan amount), can be financed into the loan.
• No private mortgage insurance.
• Loan limits removed for full-entitlement borrowers as of 2020.

USDA loans (for eligible rural homebuyers)

• Minimum: 0% down for eligible properties and borrowers.
• Income limits apply (typically up to 115% of area median income).
• Property must be in a USDA-eligible rural area.
• Annual fee applies (0.35% of loan balance).

Jumbo loans (above conforming limits)

• Typical minimum: 10–20% down, sometimes higher.
• Stricter credit requirements (usually 700+ FICO).
• Larger reserves required (often 6–12 months of mortgage payments in liquid assets).
• No PMI on jumbos with at least 20% down.

The 20% down myth and reality

The 20% down recommendation is widely cited but increasingly out of step with actual home prices. On a $400,000 home, 20% is $80,000 — a number that takes years to save for many buyers. The strict rule has softened in practice.

What 20% down actually gets you:

• No PMI (saves $50–250+ per month depending on credit)
• Slightly lower interest rate (sometimes 0.125–0.25%)
• Better starting equity position (protects against value declines)
• Lower monthly payment

What lower down payments give up:

• PMI cost (until you reach 80% LTV)
• Less equity cushion early in the loan
• Sometimes a higher interest rate

The math: if PMI costs $150/month and the rate is 0.125% higher (about $20/month on a $300,000 loan), the total premium for going below 20% is about $170/month. If you'd otherwise spend years saving the extra down payment money while home prices rise, the cost of waiting often exceeds the PMI cost. The "right" answer depends on local market conditions and personal finances.

Worked example: same home, different down payments

Auto loan down payment guidance

Auto loan down payments are less regulated than mortgages — lenders set their own requirements, and 0% down is common (especially with good credit). However, financial planners often recommend:

• New vehicles: 20% down to offset depreciation in the first year
• Used vehicles: 10% down as a balance between affordability and equity
• Maximum loan term: 60 months for new, 48 months for used to avoid being underwater

The biggest risk of low or no down payment on a vehicle is being "underwater" — owing more than the car is worth. A new car typically depreciates 20–25% in the first year, so if you put 0% down, you'll likely be underwater immediately and stay there for 2–3 years. If you need to sell or trade in during that time, you'll have to pay the difference out of pocket.

Sources for down payment funds

Lenders are particular about where your down payment money comes from. Acceptable sources usually include:

• Your own savings. Documented as your funds in your accounts for typically 2+ months.
• Sale of assets. Vehicles, investments, second properties — with documentation of the sale.
• Retirement account distributions or loans. 401(k) loans are common; withdrawals trigger tax and penalty issues.
• Gift funds from family. Usually requires a "gift letter" stating the funds don't have to be repaid.
• Down payment assistance programs. State and local programs that grant or lend down payment funds to qualified buyers.
• Tax refunds. Documented as having been received.

Lenders generally do not accept:

• Undocumented cash deposits. Lenders need to trace where funds came from to comply with anti-money-laundering rules.
• Personal loans for down payment. The loan would create new debt that affects your debt-to-income ratio.
• Credit card cash advances. Same problem as personal loans, plus high interest rates.

Down payment assistance programs

If you have limited cash but good credit and income, down payment assistance (DPA) programs can help. These exist at federal, state, and local levels.

Types of DPA:

• Grants: Money that doesn't need to be repaid. Often forgivable if you stay in the home for a minimum period (e.g., 5 years).
• Forgivable loans: Second mortgages that don't require payments and are forgiven over time.
• Deferred-payment loans: Second mortgages with no payments due until you sell or refinance.
• Low-interest second mortgages: Below-market-rate loans for down payment funds.

Eligibility varies but typically includes income limits (often 80% of area median income), home purchase price limits, first-time homebuyer requirements, and homebuyer education course completion.

Hidden costs beyond down payment

Don't focus only on the down payment number. The total cash needed at closing includes:

• Down payment (the obvious one)
• Closing costs (typically 2–5% of loan amount)
• Appraisal fee ($400–600, paid during application)
• Home inspection ($300–600, optional but recommended)
• Prepaid items (property tax escrow, insurance, prepaid interest)
• Moving expenses
• Immediate repairs or furnishings
• Emergency fund replenishment

A $350,000 home purchase often requires $60,000–80,000 total cash beyond just the down payment if buying with 20% down. Plan for the total, not just the down payment line.

How down payment interacts with the calculator

Get Loan Calc's down payment field directly affects the financed principal. Increasing the down payment reduces the principal, which reduces the monthly P&I and total interest. Use this to test scenarios like:

• How much does my monthly payment change if I put down another $10,000?
• What loan amount can I afford if I keep the monthly payment at $1,800?
• How long does it take to break even on putting more down vs investing the cash elsewhere?

Frequently asked questions