How much do you need to save for a down payment on a house?
A house is the biggest purchase most people will ever make. It’s a major life achievement, and it carries the price tag to match. Finding and evaluating the right home is a stressful process on its own, but the down payment waiting at the end of the tunnel is enough to give many prospective buyers a grey hair or two. But how much is the down payment for a house?
The truth is, with a proper saving plan, it might not be as bad as many expect. Different financing options can also reduce the amount owed upfront, spreading the cost over many years to ease the burden. In this article, we’ll cover the downpayment on a house, discussing what it is, how it works and how much you might expect it to be.
What is a down payment?
A down payment is the first payment you make on a house upon closing the sale. The amount is usually determined by taking a percentage of the home’s full cost, often between 3 and 20 percent. Multiple factors affect this amount, from the type of mortgage you choose to the amount of money you have available to spend.1
What is the average down payment on a house?
Down payments may vary quite a bit depending on buyers’ spending power and the mortgage they choose. Larger down payments (around 20 percent) are often considered the norm, but the reality might surprise you. According to the National Association of REALTORS®, first-time buyers’ average down payment in 2023 was just 8 percent. That number climbs to 19 percent among repeat buyers.2
Minimum amount required for down payment on home
There is no single minimum down payment. The amount required varies from buyer to buyer. For example, the minimum down payment for a house with a first-time buyer may be lower, as indicated by national averages. The type of mortgage plays a large role, too. Here’s a breakdown of minimum down payments for some common loans:
- Conventional Loan – 3%
- Federal Housing Administration (FHA) Loan – 3.5%
- US Department of Veterans Affairs (VA) Loan – 0%
- US Department of Agriculture (USDA) Loan – 0% 1
- Jumbo Loan – 5-10% 3
Remember, these are percentages of the home’s full cost. So, in the case of a conventional loan’s minimum down payment, you would owe 3 percent of your home’s price.
VA and USDA loans: No down payment required
Some loans don’t require downpayments. Some active-duty service members and veterans may qualify to receive a VA loan, a loan backed by the US Department of Veterans Affairs.4 No down payment is required for these loans, although eligibility may be affected by the applicant’s length of service and reason for being discharged.
If the home you are purchasing is located within a rural or suburban area approved by the USDA, you may qualify for a USDA loan. These loans do not require downpayments either, although you must have sufficient income to qualify.2
Conventional mortgage: Minimum of 3% down payment required
Conventional loans may offer a wide range of down payment requirements depending on the lender. The better your credit score is, however, the better your chances may be of qualifying for a lower down payment. If your credit score is 620 or higher, your down payment may be approved at just 3 percent.2
FHA loans: Minimum of 3.5% down payment required
Backed by the Federal Housing Administration, FHA loans offer buyers with lower credit scores the opportunity of home ownership. The FHA insures these loans, protecting the lender in the event the buyer cannot make good on payments. Under this arrangement, buyers with a credit score of 580 or higher may qualify for a down payment as low as 3.5 percent.5
Jumbo loan: Minimum of 5-10% down payment required
Jumbo loans are considered “non-conforming”, meaning they may exceed the limits outlined by Fannie Mae and Freddie Mac. This kind of loan is most often used for the purchase of expensive properties and has stricter requirements for income, credit score and even cash reserves in some cases. Buyers applying for a jumbo loan may expect higher down payments, although some may still be as low as 5-10 percent.3
How to save money for a down payment on a home?
Saving to purchase a home can be a daunting task, but with the right strategy, it doesn’t have to be. Once you know how much you need for a downpayment on a house, you can set your goal and start saving. Here are some tips to get you on your way:
- Budget – No one ever saved without budgeting their expenses. Think carefully about where your money goes and carve out a sum that will be dedicated to your savings goals each month.
- Cut back on unnecessary expenses – You need to eat, but you don’t need to eat out. Taking simple actions like planning meals at home more often and avoiding impulse purchases can go a long way.
- Increase your income – Sometimes, what you make just isn’t enough to float daily expenses and savings. Consider asking for a raise, looking for a higher-paying job or even picking up a side hustle for extra income.
- Cut down on debt – Paying down debts does leave you with less to save; however, lowering your debt can be just as important when you’re seeking a loan. Lenders may reject you if your debt is too high, making any savings a moot point.
- Auto save – Have a hard time putting money away? Automating your savings can take that task out of your hands. Simply decide how much you need to save each month and set up a regular transfer to your savings account with your bank. You’ll have less to spend each month, but your savings will grow faster.6
Ultimately, the amount you pay upfront for your home should depend on what’s most feasible for you. If you have the money saved up, a larger down payment may free you from more expensive mortgage payments down the road. On the other hand, if saving up a lump sum is difficult for you, a smaller down payment may help spread out the cost so it’s more manageable.
However you finance your home, safeguarding the investment you’ve made is essential. Get an obligation-free homeowners insurance quote from Nationwide and start protecting your most important asset.
[1] “What Is A Down Payment And How Does It Work?” rocketmortgage.com/learn/what-is-a-down-payment (Accessed November 2024)
[2] “How Much Do You Need For A Down Payment To Buy A House?” rocketmortgage.com/learn/how-much-down-payment-for-a-house (Accessed November 2024)
[3] “Jumbo Loan Down Payment Requirements for 2024,” themortgagereports.com/58660/jumbo-loans-with-low-down-payment-and-no-mortgage-insurance (Accessed November 2024)
[4] “Eligibility for VA home loan programs,” va.gov/housing-assistance/home-loans/eligibility/ (Accessed November 2024)
[5] “FHA Loans: Requirements, Loan Limits And Rates,” rocketmortgage.com/learn/fha-loans (Accessed November 2024)
[6] “11 Ways To Save For A House: Tips To Fund Your Down Payment,” rocketmortgage.com/learn/how-to-save-for-a-house (Accessed November 2024)