How much do you actually need for a down payment?
The myth that you need 20% down to buy a home has caused more rent paid than almost any other financial misconception. The truth: conventional loans accept as little as 3% down for first-time buyers, FHA loans require 3.5%, VA and USDA loans require nothing at all. The average first-time buyer in 2025 puts down around 8%. You do not need six figures in cash to buy a home — but understanding the tradeoffs at each down payment level will save you tens of thousands of dollars.
The headline comparison at the top of this calculator lets you see what you'd need at every common down payment percentage, and how long it takes to save each based on your current monthly savings rate. Pick the number that fits your timeline and financial situation, not the one a well-meaning relative told you was mandatory.
The five common down payment levels
- 3% — Conventional 97 (first-time buyers). Fannie Mae and Freddie Mac each offer 3% down programs for first-time buyers with decent credit (typically 620+). PMI applies until you hit 20% equity. Lowest barrier to entry, highest monthly payment and total PMI cost.
- 3.5% — FHA loan. Available to all buyers regardless of first-time status, with credit scores as low as 580. FHA has its own mortgage insurance (MIP) that typically lasts the life of the loan unless you refinance into a conventional mortgage. More lenient on credit but costlier long-term.
- 5–10% — Standard conventional. The most common down payment range for first-time and repeat buyers. Still requires PMI, but PMI rates drop meaningfully as your down payment rises. 10% down has materially cheaper PMI than 3% down.
- 20% — The "no PMI" line.At 20% down, PMI is not required. You also get better interest rates (typically 0.125–0.25% lower than low-down-payment loans) and stronger offers in competitive markets. This is the classic "full" down payment but by no means the minimum.
- 25%+ — Jumbo / investor territory. Loans above the conforming limit (roughly $806,500 in most counties, higher in HCOL areas) often require 25% down. Investment properties typically require 20–25% regardless of loan size.
Should you wait and save 20%, or buy sooner with less?
The correct answer depends on three things: what's happening with home prices in your market, how much PMI costs you, and what you'd do with the difference if you didn't put it into the house.
In a rapidly appreciating market, waiting to save more often loses to buying sooner. If homes in your area are rising 5% a year, a $400K home becomes $420K in 12 months, $441K in 24 months. The extra $41K of appreciation you missed out on is far more than the $100–300/month of PMI you avoided by waiting.
In a flat or declining market, the math flips. If prices are stagnant, every extra month of saving is extra down payment with no price pressure. PMI becomes a pure cost with no appreciation upside to offset it. Waiting pays in those markets.
The best strategy for most buyers: buy when you can afford the full PITI payment, with 3–6 months of reserves, even if it means paying PMI for a few years. The appreciation you capture and the rent you stop paying almost always beat the PMI cost, especially in competitive housing markets. See our PMI calculator for the exact removal timeline.
Down payment assistance programs
Many states, cities, and employers offer down payment assistance (DPA) for eligible buyers. Common programs include:
- State housing finance agency grants — every state has a housing finance agency. Many offer $5K–$15K grants to first-time buyers under income caps.
- City/county DPA programs — cities like Chicago, Houston, and Philadelphia have targeted DPA for buying in specific neighborhoods.
- Employer programs — some large employers and hospitals offer home buying assistance or forgivable loans as an employee benefit.
- Good Neighbor Next Door (HUD) — teachers, law enforcement, firefighters, and EMTs can get 50% off HUD-owned homes in revitalization areas.
Don't forget closing costs
Your down payment is not the same as your cash-to-close. You also need closing costs — typically 2–5% of the purchase price — on top of the down payment. On a $400,000 home with 10% down, your actual cash requirement is roughly $40K (down) + $12K (closing) = $52K. Budget for both. See our closing cost calculator for a state-specific estimate.
You may also want 3–6 months of PITI as post-close reserves — many lenders require this, and all financial planners recommend it. A $2,500/month PITI means another $7,500–$15,000 in cash beyond your closing requirement.
Where to save your down payment
If your home purchase is within 2 years, keep your down payment in cash- equivalents: high-yield savings accounts (4–5% APY), Treasury bills, or money-market funds. Don't put it in stocks — a 20% market drop the month before closing is catastrophic and not worth the ~3% extra annual return you'd earn over 18 months.
If you're 3+ years out, a conservative 60/40 stock/bond mix is reasonable — you're taking modest risk for modest growth, and you have time to recover from downturns. As you approach the buying window, gradually shift to cash.
Gift funds and family help
Nearly all loan programs allow gift funds from family, with proper documentation. The gift must be a true gift (no repayment expected), disclosed via a gift letter, and sourced so the lender can see where it came from. FHA loans are especially flexible: the entire down payment can be gifted. On a conventional loan with less than 20% down, you may need at least a portion from your own funds.
If you're considering borrowing from a 401(k) or taking an early IRA withdrawal to fund a down payment, run the numbers carefully. The opportunity cost of 30 years of compound growth on that money is usually far greater than whatever mortgage insurance you'd pay by putting less down. See our mortgage calculator for what different down payment levels do to monthly cost.
Related calculators
Pair this with our mortgage payment calculator to see the full PITI at each down payment level, our PMI calculator to know exactly how much PMI costs and when it drops off, and our DTI calculator to see what total housing payment your income qualifies for.