The down payment guide

The single biggest myth in home buying: you need 20% down. You don't. Depending on the loan program, buyers routinely purchase with 3–5% down, and some programs require nothing down at all (see loan types). But the size of your down payment changes nearly everything about your loan — so it's worth understanding the trade-offs.

What a bigger down payment buys you

• A smaller loan — and therefore a smaller monthly payment and less total interest. Run your numbers in the payment calculator.
• No mortgage insurance at 20%. On conventional loans, 20% down (or 20% equity) generally means no PMI — a meaningful monthly saving.
• Instant equity. Equity is your cushion against price dips and your leverage for future moves.
• A stronger offer. Sellers notice larger down payments; they signal a deal less likely to fall apart over appraisal or financing.

What a smaller down payment costs you

• Mortgage insurance. PMI on conventional loans, MIP on FHA — an extra monthly cost until you build enough equity (and on FHA, often for the life of the loan).
• More interest over time. A bigger loan at the same rate means more total interest paid.
• Thinner cushion. With 3% down, a small market dip can leave you owing more than the home is worth — which matters if you need to sell unexpectedly.

Where down payment money can come from

• Savings — the simplest source, and the one lenders like best.
• Gifts from family — allowed by most programs with a paper trail (a gift letter and documented transfer). Lenders scrutinize undocumented deposits.
• Down payment assistance programs — states, cities, and nonprofits run grants and forgivable loans for qualifying buyers, often first-timers. They're real and underused.
• Employer assistance — some employers offer homebuyer benefits; worth asking HR.
• Retirement accounts — possible in some cases, but borrowing against your future to buy your present deserves extreme caution and professional advice.

Don't forget closing costs

The down payment isn't the whole cash picture. Closing costs — lender fees, appraisal, title insurance, recording fees, prepaid taxes and insurance — typically add another 2–5% of the purchase price, due at closing. A buyer putting 5% down on a $300,000 home might need roughly $15,000 down plus $6,000–$15,000 in closing costs. Budget for both, plus an emergency fund you don't touch.