The down payment is the first number to know

The amount you need saved depends on the type of loan you get and the price of the house. Most buyers put down between 3% and 20% of the purchase price. A house that costs $300,000 would require a down payment somewhere between $9,000 (3%) and $60,000 (20%), depending on which loan program you use and what the lender requires.

The smaller your down payment, the more you borrow and the more interest you pay over time. A 3% down payment means lower upfront savings but higher monthly payments. A 20% down payment means more money saved now but lower monthly payments later. Neither is wrong — it depends on your situation and how much you have saved.

Key Takeaways

  • Down payments range from 3% to 20% of the house price, so a $300,000 house requires $9,000 to $60,000 saved.
  • Closing costs add 2% to 5% of the purchase price on top of your down payment and must be saved separately.
  • Lenders require proof that you have saved money in a bank account for at least two months before you apply.
  • Your monthly housing payment (mortgage, taxes, insurance) cannot exceed 28% of your gross monthly income, which limits how much house you can afford regardless of savings.
  • A down payment below 20% triggers mortgage insurance, which adds $100 to $300 per month to your payment depending on the loan size.

Closing costs are a separate amount you must save

Closing costs are fees paid to the lender, the title company, the appraiser, and other parties involved in the sale. They typically run 2% to 5% of the purchase price. On a $300,000 house, closing costs would be $6,000 to $15,000. This money comes out of your pocket at closing, separate from your down payment.

Some lenders allow you to roll closing costs into the loan, which means you borrow the money instead of paying it upfront. This lowers your savings requirement but increases your monthly payment and the total interest you pay. Other lenders require you to pay closing costs in cash. Ask the lender before you start saving, because the requirement varies.

Lenders want to see money in your account for two months

Most lenders require what is called proof of funds — bank statements showing that your down payment and closing costs have been in your account for at least two months. This is not a rule about how long you must save; it is a rule about where the money came from. The lender wants to see that you saved it yourself, not that someone gave it to you the week before you applied.

If a family member gives you money for the down payment, the lender will ask for a letter from that person stating it is a gift and does not need to be repaid. You will still need to show that the money sat in your account for two months after the gift arrived. If you cannot show this, some lenders will not approve your loan.

Your income limits how much house you can afford

Even if you have saved a large down payment, lenders will not lend you more than a certain amount based on your income. Most lenders use a rule called the debt-to-income ratio. Your housing payment — the mortgage, property taxes, homeowners insurance, and mortgage insurance if applicable — cannot be more than 28% of your gross monthly income (the money you earn before taxes).

If you earn $4,000 per month gross, your housing payment cannot exceed $1,120. If the house you want would cost $1,500 per month to own, the lender will not approve you, no matter how much you have saved for a down payment. This is why two people with the same savings can afford different houses — their incomes are different.

Mortgage insurance adds cost if your down payment is under 20%

If you put down less than 20%, the lender requires you to buy mortgage insurance (also called PMI, or private mortgage insurance). This insurance protects the lender if you stop paying the loan. The cost is typically 0.5% to 1% of the loan amount per year, added to your monthly payment.

On a $240,000 loan (20% down on a $300,000 house), mortgage insurance might add $100 to $240 per month. On a $270,000 loan (10% down), it might add $135 to $270 per month. You can remove mortgage insurance once you have paid down the loan to 80% of the original house price, but that takes years. This is why a larger down payment saves money over time — you avoid years of insurance payments.

Emergency savings should stay separate from your down payment

Putting every dollar you have saved into a down payment leaves you with no cushion for emergencies after you buy. Lenders do not require you to keep savings after closing, but financial advisors generally recommend having three to six months of housing payments saved separately. This covers the mortgage, taxes, insurance, and utilities if you lose income.

If you have $40,000 saved and need $30,000 for down payment and closing costs, keeping $10,000 in a separate account for emergencies is wise. If you have only $30,000 saved, you may need to choose between a larger down payment (which lowers your monthly payment) and an emergency fund (which protects you if something goes wrong). There is no single right answer — it depends on your job stability and how much risk you are comfortable with.

Different loan types have different down payment requirements

Conventional loans (the most common type) typically require 3% to 20% down. FHA loans, insured by the Federal Housing Administration, allow down payments as low as 3.5%. VA loans, available to military members and veterans, sometimes allow 0% down. USDA loans, available in rural areas, also sometimes allow 0% down.

Lower down payment requirements mean you need less saved upfront, but they also mean higher monthly payments because you are borrowing more. An FHA loan with 3.5% down on a $300,000 house requires $10,500 saved, but your monthly payment will be higher than a conventional loan with 20% down. The trade-off is between saving money now and paying more later.

Frequently Asked Questions

Can I use money from my retirement account for a down payment?

Some retirement accounts allow withdrawals for a first-time home purchase, but you may owe taxes and penalties. A traditional IRA allows up to $10,000 withdrawn tax-free for a first-time purchase, but a 401(k) withdrawal is usually taxed as income. Talk to the account holder or a tax professional before withdrawing, because the rules vary by account type and your age.

What if I do not have 20% saved — should I wait?

Not necessarily. A 3% or 5% down payment is common and lets you buy sooner. You will pay mortgage insurance and a higher monthly payment, but you build equity in the house instead of paying rent. The choice depends on whether you are ready to buy now or whether waiting to save more makes sense for your situation.

Do I need to save the down payment and closing costs separately?

Not in separate accounts, but you do need to have enough total savings to cover both. If a house costs $300,000 with 10% down and 3% closing costs, you need $30,000 plus $9,000 = $39,000 saved. Some lenders let you roll closing costs into the loan, which lowers the cash you need upfront.

What happens if I save the money but then spend it before closing?

The lender will see the lower bank balance on your final statements before closing and may delay or deny your loan. Once you have been approved, avoid large withdrawals or new debt. The lender checks your accounts again a few days before closing to make sure the money is still there.

Can I borrow money for a down payment?

Most lenders will not approve a loan if you borrowed the down payment from another lender. They want to see that you saved the money yourself. A gift from a family member is allowed (with a gift letter), but a loan is not, because it increases your debt and makes you look riskier to the lender.