Is it 20% down? Or 3% down? Or somewhere in the middle?
It’s a tough housing market for new buyers. Home prices continue to rise and break records. June’s median U.S. home listing price was $450,000, beating out the previous month, according to 2022 data from Realtor.com. That’s a 31.4% increase compared to June 2020. If you’re in the market to buy, you might be asking yourself how much money you actually need for a down payment?
It’s one of the most important questions to answer when you’re house hunting. Before you get attached to any particular home, you’ll want to make sure you have enough money to cover a down payment and closing costs. Even though a 20% down payment may be the gold standard for homebuying, it’s not a requirement. There are other options.
Here are the average down payments, depending on where you live, your age, and what type of mortgage you’re seeking, and options for those with less than 20% saved.
What’s the Average Down Payment for a House?
There’s no simple answer to this question. It all depends on who you are as a homebuyer: How old you are, if this is your first house, and what type of mortgage you’re taking out — to name a few of the variables.
One thing is clear: If this is your first home purchase, your down payment is likely to be smaller.
“People are wanting to buy, but have not saved a lot of money,” said Vicki Ide, vice president and residential lending manager at Tompkins VIST Bank. And because first-time buyers don’t have a previous house to sell, they don’t have any equity to rely on. “They’re working with literally the cash they saved,” she said.
Thankfully, there are certain types of mortgages and programs specifically designed for this situation (more on that later). First-time buyers can often put as little as 3% down, and in some cases can qualify for a 0% down payment.
“Most of our clients do 3%,” said Haider Garzon, a home ownership advisor with the Troy Rehabilitation & Improvement Program in New York. “Sometimes I do see people wanting to save up to 20% so they can waive private mortgage insurance.”
Average down payments also vary a lot by age, as you can see in the chart below. The trend is pretty straightforward: The older you are, the more money you’re likely to have from your salary or in home equity, and the more money you’re likely to put down for a home purchase.
Average Down Payment by Age
|Age Group||Down Payment %|
|All Buyers of All Ages||12%|
|22 to 30||6%|
|31 to 40||10%|
|41 to 55||13%|
|56 to 65||18%|
|66 to 74||23%|
|75 to 95||21%|
What Is the Typical Down Payment for a Home by State?
Of course, the cost of a new home will also depend a lot on where you live. There’s some pretty simple math behind that: a 10% down payment on a $200,000 home is a lot less than a 10% down payment on a $500,000 home ($20,000 and $50,000, respectively).
You can use the table below to find the median home value in your state, and then estimate your down payment, depending on what percentage you plan to put down. For example, in California — one of the most expensive states to buy a home right now — a 3.5% down payment is $26,914 on the average home. In Michigan, that 3.5% down payment would be $7,969 on the average home.
If you’ve got your eye on a specific property, you can estimate your down payment by multiplying the percentage against the price of the home.
Different states might also have different loan programs available, which can affect what percentage you need to put down on your home. For example, New York state residents have access to SONYMA loans — a type of mortgage that allows down payments as low as 3% if you meet the requirements.
A smaller down payment isn’t always better. Make sure you understand the drawbacks of putting less money down.
Average Down Payment by State
|State||Median Home Value 2022*||3.5% Down Payment||5% Down Payment||10% Down Payment||20% Down Payment|
|District of Columbia||$704,708||$24,665||$35,235||$70,471||$140,942|
Does a Down Payment Have to be 20%?
If you’re in the market for a mortgage, you’ve likely heard a good deal about 20% down payments. This benchmark is required on some loans, but even when it isn’t, putting down 20% can help you avoid private mortgage insurance — an additional monthly cost tacked on by the lender.
But is it really necessary to save up that much? Well, there are definitely some clear upsides to a 20% down payment.
“The main benefit: The more money you put down, the less loan you’re getting, the less interest you’re paying on your loan in the long term,” Garzon said.
Plus, a 20% down payment often waives the need for mortgage insurance, which costs as much as $80-100 per month. “You’re lowering your payment,” Garzon said. PMI is something lenders add to mortgages when the down payment is low, to compensate for the “risk” associated with that borrower and the potential for default.
And when you put 20% down on your home, you start off with a solid chunk of equity — which can be useful later if you need a home equity loan or need to refinance.
“You have equity built into your property instantaneously,” Ide said.
There are, however, some downsides to putting down such a large deposit. For many buyers, 20% down is a large chunk of cash that takes some serious savings. And if you empty out your account to make that happen, you’re left without any reserves.
“You may need money in the future, you may need a little bit of savings for an emergency,” Garzon said.
It’s more likely than not that you will: Homeownership is rife with unexpected costs that can be a rude awakening for first-time buyers.
“What if something happens when you move into the house? You have no cushion of your own,” Ide said. “Being a homeowner, you never know.”
And of course, the more money you want to put down, the longer it will take you to save up — delaying your ability to buy a home at all. That can have a significant cost as well, especially if buying would represent a cost savings over renting.
Pros and Cons of a 20%+ Down Payment
Avoiding private mortgage insurance
Less interest paid over the life of your mortgage
Investing more equity in your home
Draining your savings with little left over for emergencies
Delaying your ability to purchase a home
Minimum Down Payment Requirements by Loan Type
FHA loans are a type of government loan, geared toward lower-income and first-time home buyers. The down payment on an FHA loan can be as low as 3.5% of the purchase price. That comes with some caveats: To qualify for that minimum down payment, your credit score must be at least 580. If your score is between 500 and 579, the minimum down payment is 10%. The loans can be used for single-family homes, two-to-four unit homes or condos, and they require private mortgage insurance.
This is another government-backed loan, but it’s focused on affordable housing outside of major cities. In fact, USDA loans don’t require a down payment at all. To qualify, the property must be located in an eligible rural area. You’ll also need a minimum credit score of 640, and your other debt obligations can’t exceed 41% of your pre-tax income. You must also fall within local income limits. USDA loans come with a monthly funding fee, similar to private mortgage insurance.
VA loans are mortgages that are backed by the U.S. Department of Veterans Affairs, and offered exclusively to veterans and service members. There are different types of VA loans, but their big benefit is that you can qualify for a 0% down payment. Because VA loans are originated by private lenders, criteria for the loans may vary, though there is no minimum credit score requirement.
A conventional loan is just what it sounds like. These are the most common type of mortgage, and they’re not backed by the government. You’ll need a much stronger credit profile to qualify for a conventional loan, compared to more flexible government loans. The minimum down payment is 3%, and the minimum credit score is 620. Individual lenders, however, might have additional income or debt criteria on top of that.
What If I Don’t Have 20% for a Down Payment?
So you want or need to buy a house, but you don’t have that 20% saved up. What are your options? It depends on how urgent your home purchase is, and your specific financial profile.
Here’s what the experts recommend:
Wait to Buy a House and Save
This is the simplest strategy: If you’re set on putting down 20%, you can wait it out as you methodically build up your savings account.
The benefit here is that you’ll be making a solid purchase with lots of equity and no PMI, even if it takes you longer to get there. But if you have an urgent need to buy — say, for a job relocation — waiting likely won’t work for you. And if you wait too long, you might lose your dream house, or end up in a much different (and potentially more expensive) real estate market.
First-Time Homebuyer Programs
Garzon encourages everyone to start their home-buying journey with a HUD-certified housing counselor to understand all of the first-time homebuyer options available. These will depend on where you live, and how much money you earn, but you might qualify for a program that covers some or all of your down payment.
If you do qualify for one of these grants, it can be a huge leg up. But Ide warns these programs can be few and far between, and the process could slow down your home purchase overall. “Grant programs are just hard to find,” she said.
Government Sponsored Loan
Government-sponsored programs mentioned above — FHA, USDA and VA loans — have some of the lowest down payments available. Depending on which one you choose, your down payment could be between 0% and 3%.
The obvious benefit here is that you’re required to put down a lot less money at the closing table. But be aware that some of these loans have extra fees — like mortgage insurance or funding fees — that can increase your overall payment. And generally speaking, qualifying for a government loan is a more complicated process than going with a conventional loan.
Buy With What You Have
You might not think that a less-than-20% down payment is ideal, but it is possible. If you have your heart set on buying right now, and can manage a 3% or 5% down payment, you’d likely be able to find a loan that works for you.
This will mean you have to pay PMI, and you’ll be paying off a larger loan with more interest over time. But if it’s possible for you to buy with a smaller down payment, it might be worth crunching the numbers.
Talk to a Lender
If you’re not sure what to do, your best bet might be to sit down with a mortgage lender. That might be your existing bank, or a different financial institution, but going in for a consultation can help you understand your options.
The important thing is not to count yourself out. You might not have 20% saved, but that doesn’t mean you can’t buy a house.
“It shouldn’t cost you anything to talk to a local lender,” Ide said.
Related: 10 Best Mortgage Lenders