What Is a Down Payment? Understanding the First Step Toward Buying a Home

When you’re thinking about buying a home, one of the first financial hurdles is the down payment—but what exactly is it, and how much do you really need?

What Is a Down Payment?

A down payment is the amount of money you pay upfront toward the purchase price of a home. The rest of the cost is typically financed through a mortgage loan.

For example, if a home costs $300,000 and you put down 10%, your down payment would be $30,000, and your loan would cover the remaining $270,000.

Why Lenders Require a Down Payment

Down payments serve a few important purposes:

• They lower lender risk: By investing your own money, you show you’re committed to the purchase.

• They affect your loan terms: A higher down payment can mean a lower interest rate.

• They determine mortgage insurance: If your down payment is under 20% on a conventional loan, you’ll likely need to pay private mortgage insurance (PMI).

How Much Do You Need for a Down Payment?

The old rule of thumb was 20%, but that’s not required for most buyers. According to the NAR, the average down payment for first-time home buyers is around 6%-9% while repeat buyers down payment is around 23%. Today, many home loans allow for much smaller down payments:

• Conventional loans: As low as 3%

• FHA loans: Minimum 3.5%

• VA and USDA loans: May require no down payment if you qualify

The amount you choose depends on your financial situation, monthly budget, and long-term goals. A larger down payment can reduce your loan amount and monthly mortgage payment, but it’s not the only path to homeownership.

Find the right mortgage for you—discover your options »

Down Payment Help Is Available

The most common sources of down payments for homebuyers:

• Personal Savings – money you’ve set aside in checking, savings, or investment accounts.

• Gift Funds – money you receive from friends, family members, or others that can be put toward your downpayment. Some lenders require a gift letter that states that the money doens’t need to be repaid.

• Retirement Account Withdrawals – in some cases you can pull money from an IRA of 401(k) account, especially up to $10,000 with no penalty for first time homebuyers, though taxes may apply.

• Sale of Assets or Home Equity from Another Property – money you get from selling a car, valuables, or another property. Sale documentation may be required.

• Employer Assistance – some employers offer benefits to help with purchasing a home, including direct down payment support or matched savings programs.

• Down Payment Assistance Programs – local, state, and national programs may offer grants, forgivable loans, or deferred-payment loans to qualifying buyers. These are especially helpful for first time buyers.

Down Payment Help Is Available

If saving for a down payment feels out of reach, you’re not alone—and you don’t have to go it alone. There are state and local programs that offer:

• Grants

• Forgivable loans

• Deferred-payment second mortgages

• Matched savings accounts

These down payment assistance programs are designed to help first-time and qualifying buyers get into a home faster—and with less money upfront.

Ready to make your move sooner?

Discover how grants, forgivable loans, and other programs could help cover your down payment.
👉 Read our full guide on Down Payment Assistance »