The down payment is what you save; the rest comes from a mortgage

When you buy a house, you do not pay the full price upfront. You make a down payment—the money you save and bring to closing—and borrow the rest through a mortgage loan from a bank or lender. The down payment is typically between 3% and 20% of the home's purchase price, depending on the loan type and what the lender requires.

If you are looking at a house that costs $300,000, a 10% down payment would be $30,000. A 20% down payment would be $60,000. The lender finances the remaining balance, and you repay it over 15 to 30 years with interest. So the question "how much do I need to save" really means: how much down payment can you afford, and what else do you need to cover at closing?

Key Takeaways

  • Down payments range from 3% to 20% of the home price depending on loan type; lower down payments mean higher monthly payments and mortgage insurance costs.
  • Closing costs—fees for the appraisal, title search, inspection, and loan processing—typically run 2% to 5% of the purchase price and come out of pocket.
  • You should also save for a home inspection, property survey, and homeowners insurance before closing, which are separate from the down payment.
  • A larger down payment (20% or more) eliminates private mortgage insurance and lowers your monthly loan payment, but takes longer to save.
  • First-time buyer programs in your state or county may lower the down payment requirement or cover some closing costs.

Down payment amounts and what they mean for your monthly payment

A smaller down payment means you borrow more money, which raises your monthly mortgage payment. It also triggers private mortgage insurance (PMI)—an extra monthly fee the lender charges to protect themselves if you default. PMI typically costs 0.5% to 1% of the loan amount per year, added to your monthly bill.

A 3% down payment on a $300,000 house means you borrow $291,000. A 10% down payment means you borrow $270,000. The difference in monthly payment is significant over 30 years. You also pay PMI on the smaller down payment until you have paid down the loan to 80% of the home's value, which can take years.

A 20% down payment ($60,000 on a $300,000 house) eliminates PMI entirely and lowers your monthly payment by several hundred dollars. The tradeoff is that you need to save more before you buy. Many first-time buyers choose 5% to 10% down to buy sooner, then refinance later if their financial situation improves.

Closing costs are separate from your down payment

Closing costs are the fees and charges you pay to finalize the loan and transfer ownership. They include the appraisal (the lender's inspection of the property), title search and insurance (to confirm the seller owns the house), loan origination fees, and attorney or escrow fees. These typically total 2% to 5% of the purchase price.

On a $300,000 house, closing costs could range from $6,000 to $15,000. Some lenders allow you to roll closing costs into the loan (meaning you borrow the money instead of paying it upfront), but this increases your total debt and monthly payment. Many buyers save for closing costs separately from their down payment so they understand the full cash they need at closing.

The lender will provide a Loan Estimate within three days of your application, which lists all closing costs in detail. This is the document to use when calculating your total savings target.

Other costs to budget for before and at closing

Beyond the down payment and closing costs, you will need money for a home inspection (typically $300 to $500), which you usually pay out of pocket before closing. Some buyers also pay for a property survey to confirm the boundaries, which costs $200 to $600 depending on the property size and location.

You will also need to pay for the first year of homeowners insurance before closing; the lender requires proof of coverage. Insurance costs vary widely by location, home value, and coverage level, but budgeting $1,000 to $2,000 for the first year is reasonable. Some lenders also require you to prepay property taxes and homeowners insurance into an escrow account at closing, which adds another month or two of these costs upfront.

After closing, you will have moving costs, repairs or updates to the house, and ongoing maintenance. Many financial advisors suggest saving an additional 1% to 2% of the home price for repairs and maintenance in your first year.

How to calculate your personal savings target

Start with the price range of homes you are looking at in your area. Decide what down payment percentage makes sense for your situation—3% if you want to buy soon, 10% to 15% if you want a moderate payment and can wait a few years, or 20% if you want to avoid PMI and have time to save.

Multiply the home price by your down payment percentage. Then add 3% to 5% for closing costs. Then add $1,000 to $2,000 for inspection and insurance. That total is roughly what you need to save before you can close on a house.

For example: a $250,000 home with a 10% down payment ($25,000) plus 4% closing costs ($10,000) plus inspection and insurance ($2,000) = $37,000 total. If you can save $500 per month, that takes about 74 months, or just over six years. If you can save $1,000 per month, it takes about 37 months, or just over three years.

First-time buyer programs that lower the down payment

Many states, counties, and cities offer down payment assistance or lower-down-payment loan programs for first-time homebuyers. These programs vary widely by location. Some cover part of the down payment as a grant (money you do not repay). Others offer loans with lower interest rates or allow down payments as low as 1% to 3%.

The Federal Housing Administration (FHA) loan is a federal program that allows down payments as low as 3.5% and is available through most lenders. The VA loan (for military members and veterans) requires no down payment at all. The USDA loan (for rural properties) also requires no down payment for borrowers who meet income limits.

Your state housing finance agency or your county assessor's office can tell you what programs exist in your area. Many also have websites listing current programs and income limits. Starting there is faster than asking individual lenders, because lenders only know the programs they offer, not all the options available to you.

Deciding between saving longer for a bigger down payment or buying sooner

There is no single right answer. Buying sooner with a smaller down payment means you start building equity in a home now, and you lock in a mortgage payment (which does not change, unlike rent). The downside is a higher monthly payment and PMI costs for several years.

Saving longer for a 20% down payment means a lower monthly payment and no PMI, but you continue renting and building no equity. If home prices in your area are rising faster than you can save, buying sooner may make financial sense even with PMI. If prices are stable or falling, waiting to save more may be the better choice.

A middle path many buyers take is putting down 10% to 15%, accepting PMI for a few years, and refinancing to remove it once they have paid the loan down to 80% of the home value or their home has appreciated enough to reach that threshold.

Frequently Asked Questions

Can I use a gift from family for my down payment?

Yes. Most lenders allow down payment gifts from family members, but they require a signed letter from the gift-giver stating it is a gift, not a loan you have to repay. The lender wants to confirm you are not taking on hidden debt. Keep the letter with your loan documents.

What if I do not have enough saved for closing costs?

Some lenders allow you to roll closing costs into the loan amount, so you borrow the money instead of paying it upfront. This increases your total debt and monthly payment. Some sellers will also negotiate to cover part of your closing costs as part of the purchase agreement, though this is less common in competitive markets.

Do I need to save the full down payment before I talk to a lender?

No. Lenders will pre-may have access to you based on your income and credit before you have saved anything, so you know what price range you can afford. Pre-qualification is free and does not commit you to anything. Once you have saved your down payment and are ready to make an offer, you move to the formal application process.

What happens if home prices rise faster than I can save?

This is a real problem in many markets. If prices are rising 5% per year and you can only save 3% of a home's value per year, your target keeps moving away. In this situation, many buyers choose to buy sooner with a smaller down payment rather than wait indefinitely. A mortgage advisor in your area can help you model this scenario with real numbers.

Is there a minimum down payment I should aim for?

The minimum varies by loan type: FHA loans go as low as 3.5%, conventional loans typically require 3% to 5%, and VA and USDA loans require 0%. From a financial standpoint, 20% eliminates PMI and gives you the lowest monthly payment. But 10% to 15% is a reasonable middle ground if you want to buy within a few years and can afford the PMI cost.