5 min read May 14, 2024

How Much Do You Really Need for a Down Payment in 2024?

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Edited By

Megha Mulchandani

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Editor
Edited By

Megha Mulchandani

Editor, Houzeo
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Megha M. is an adept content editor well-versed in the intricacies of American market dynamics and economic trends. In her free time, she excels as a versatile theatre artist and public speaker.

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There are misconceptions about how much down payment is needed for a house. As per a survey, more than one-third of Americans believe that it is mandatory to pay a 20% down payment. However, this statement is untrue.

Around 44% of homebuyers put down less than 20%. The average down payment has increased by 118%, from $13,937 in 2019 to $30,500 in 2023.

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📉 Down Payment on a House

  • You can avoid paying for mortgage insurance if you put down 20% on a house.
  • Government-backed loans such as the VA loan and the USDA loan offer zero-down payment mortgages.
  • You can avail conventional loans for a low down payment of 3%.

What Is a Down Payment?

The down payment is the lump sum of money a buyer pays their lender. It is due at closing and represents a percentage of the total purchase price. The purpose of a down payment is to reduce the lender’s risk by ensuring the borrower’s stake in the property.

Do You Need to Put Down 20% on a House?

No, it’s not mandatory to put 20% down on a house. However, 34% of Americans believe that you must put down 20% as a down payment. Having said that, it also allows you to avoid mortgage insurance.

How Is a 20% Down Payment Better Than a Smaller Down Payment?

A 20% down payment comes with multiple benefits:

  • Saves Money: Putting more money down reduces your monthly mortgage payment and may allow you to get better rates or terms.
  • Provides Financial Stability: A larger down payment saves you from interest rate fluctuations. Moreover, it makes the lenders aware of your financial health and escalates the loan approval process.
  • Helps to Avoid PMI: With a 20% down payment, you can avoid paying for private mortgage insurance.

A lower down payment may appear more appealing in the short term, but it will cost more in the long run.

  • High Loan Value: A lower down payment means more borrowed funds. This means that your monthly payments will be higher, and you will pay more interest overall.
  • High Costs: A down payment of less than 20% may increase your cost of borrowing. This may attract a higher interest rate.
  • PMI: You’ll have to pay private mortgage insurance if you put down less than 20% of the home value.

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Can You Buy a House With No Money Down?

Yes, you can buy a house with a zero-down payment mortgage, but only through government-backed loans. VA loans and USDA loans offer zero-down payment guarantees. However, you must meet the minimum individual qualifications for both loans so that you can buy a house in your budget respectively.

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What Is the Minimum Down Payment for a House?

The minimum down payment on a house depends on the type of loan you apply for.

  • Conventional Loans: Down payment requirements on a conventional loan depend on the buyer. While some lenders may ask you to put down 5%, others may ask for 3%. If your credit score is above 620, you may qualify for a lower down payment.
  • FHA Loans: This loan requires a down payment of at least 3.5% with a minimum credit score of 580. However, if your credit score is between 500 and 579, you may get an FHA loan with a 10% down payment.
  • VA Loans: The Department of Veterans Affairs offers this loan without any down payment. Your length of service and discharge reasons determine your eligibility.
  • USDA Loans: A USDA loan doesn’t require a down payment. However, your house must be in an approved rural or suburban area to be qualified for a loan. Moreover, everyone in your household must meet the income requirements.

Bottom Line: How Much Down Payment Is Required for a House?

How much down payment you need for a house depends on your financial goals. Although a 20% down payment has many benefits, it can also put you in financial hardship.

Conventional loans and FHA loans have low down payment requirements of up to 3% and 3.5%, respectively. Moreover, government loans like the USDA loan and the VA loan provide zero-down payment mortgages.

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Frequently Asked Questions

How much is the average down payment on a house?

As per NAR, a first-time homebuyer pays an average of 6% as a down payment, whereas repeat buyers put down 17%.

How much is the minimum down payment for a first-time buyer?

While the average down payment for a first-time buyer is 6%, the buyer can opt for a conventional loan with a down payment of 3%.

What credit score do you need for a zero-down home loan?

You need a minimum credit score of 640 to qualify for a zero-down payment mortgage.

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