How Much Is a Down Payment on a House?

Shopping for a new home is both exciting and mystifying. One of the questions you may have is how much is a down payment on a house? That can vary quite a bit, depending on the purchase price of your home, the type of loan you get, your credit score and other factors. Knowing how much down payment on a house is required can help you determine how much you need to save before looking for a home.

What is a Down Payment?

A house down payment is the portion of the home’s total purchase price that you pay upfront. Most people take out a mortgage loan to pay the balance. For example, how much is a down payment on a 300K house? If you buy a $300,000 house and you have a $30,000 down payment, you would need a $270,000 mortgage.

The down payment for a house is paid in a lump sum, at closing. The higher the down payment, the less the buyer will need to finance and the lower the monthly loan payments will be.

Is a Down Payment the Same as Earnest Money?

No, an earnest money (EM) deposit is a payment from you to the seller when you make an offer on a house. The purpose of the EM is to show the seller that you’re serious about buying the house, and it gives you time to secure financing and arrange for a home inspection. Think of it as putting a purchase on hold at a store for a small cost.

The EM is usually held in an escrow account until the deal closes and you get your keys. The EM can range from 1%–10% of the home’s price, depending on the purchase price of the property. Once the purchase is completed, the EM goes toward your down payment.

Here’s an example of how your down payment and your EM affect your mortgage amount and the amount you need to pay when your deal closes.

How Much Is a Down Payment on a House?

The amount you need for a down payment depends on the purchase price of the house, the type of loan you get to finance your purchase, your credit score, and a few other factors. These are the major loan types:

• Conventional Home Loans: Typically require 3%–20% down, depending on the specific lender and your credit profile.
• Federal Housing Administration (FHA) Loans: Require a minimum 3.5% down payment for borrowers with a credit score of 580 or higher. If your credit score is lower, the down payment amount is 10%.
• VA Loans: Require 0% down for eligible military service members, veterans, and surviving spouses.
• US Department of Agriculture (USDA) Loans: Provide 100% (0% down payment) financing for home buyers with low to average income if they’re purchasing a home in our rural WI area (as defined by the USDA).
• WHEDA Loans: 100% financing available for home buyers with income and purchase limits in the State of Wisconsin.

If you’re wondering how much is the average down payment on a house, it varies based on several factors. The average down payment on a house for first-time buyers is often lower due to assistance programs, but overall, buyers typically put down between 6% and 12%.

What is Mortgage Insurance?

Mortgage insurance also known as PMI is often required by lenders (the bank, mortgage company, or person who lends you the money to pay for your house). It is a montly payment that is added on to your monthly mortage payment.

• Conventional home loans usually require private mortgage insurance (PMI) if your down payment is less than 20%. This can usually be removed once you have made enough mortgage payments to cover the 20%, also known as having 20% equity in the home.
• All FHA loans require mortgage insurance, which is paid directly to the FHA. This type of insurance requires an upfront fee and monthly payments, but the upfront fee can be rolled into your mortgage.
• USDA and WHEDA loans also require mortgage insurance and work similarly to FHA loans, though the insurance tends to be less expensive.
• For VA loans, the VA guarantees a portion of the loan, so you don’t need PMI. There is a VA funding fee due at closing, but it can be rolled into the loan amount.

Mortgage insurance is intended to protect the lender in case you don’t make your mortgage payments, or you abandon your home.

Is It Better to Make a Large Down Payment?

Yes, if you can afford it, a larger house down payment has several advantages:

• Eliminates or reduces the cost of mortgage insurance
• Reduces your monthly mortgage payments
• Reduces the total interest paid over the life of the mortgage, which effectively lowers the cost of the house

That said, not everyone can afford a large down payment, which is why lenders and government agencies offer different options. Some home buyers also prefer to keep some cash on hand rather than applying all their savings to a down payment for a house. Although I can't give financial advice, I can discuss your down payment with you and serve as a sounding board as you weigh your options.

How to Save for a Down Payment

Saving for a down payment can be a big challenge, especially if you’re already paying rent. However, there’s no time like the present to get started, and making a few sacrifices now will pay off when you’re able to make that down payment. Here are some tips to help you get started:

• Set a savings goal: Having a specific target makes it easier to stay on track. When you see yourself making progress toward your goal, it will encourage you to keep going.
• Automate savings: Set up automatic transfers to a dedicated savings account. Talk to your bank about how to set up an account that’s more difficult for you to dip into impulsively.
• Reduce discretionary spending: Do an audit of your subscriptions and other periodic payments to see which ones you can eliminate. Try to cut spending on things like eating out and entertainment. This may sound impossible, but it can be done; look around the internet for tips and guides on how to save money in your everyday life.
• Consider down payment assistance programs: Many states offer grants and low-interest loans to help first-time buyers.

Homebuyer Assistance Programs

There are several federal and state programs to help Americans purchase homes. Be sure to look into these, especially if your down payment for house savings is still growing.

• FHA Loans: Low down payment and more lenient credit requirements.
• VA Loans: No down payment is required for eligible veterans.
• USDA and WHEDA Loans: No down payment for homes in our central WI qualifying rural areas.
• Down Payment Plus Assistance (DPP) Programs: There are grants, forgivable loans, and tax credits available for first-time buyers. The Down Payment Plus Program offers up to $10,000 as a grant towards your down payment and closing costs.