A down payment is the portion of a purchase price you pay in cash upfront — the part that does not come from a loan. On a $400,000 home with a 10% down payment, you bring $40,000 to closing and borrow $360,000. That ratio affects your monthly payment, your interest rate, whether you pay PMI, and how much risk you carry from day one.
What changed in 2026
- Down payment assistance programs expanded — federal and state programs added more income-band eligibility, and some metros now offer forgivable second-lien grants up to $25,000–$30,000 for first-time buyers.
- Rates remain elevated, which puts a premium on larger down payments: every dollar down reduces the principal bearing interest.
- The 20% myth persists but weakens — lenders and consumer education sites increasingly emphasize that 3–5% programs are legitimate pathways, not traps.
- Gift fund rules stayed consistent — conventional and FHA loans still allow gift funds from family, with documentation.
How down payment size changes your loan
| Down payment |
PMI required? |
Effect on rate |
Monthly payment (illustrative) |
| 3% (conventional) |
Yes |
Baseline rate |
Highest |
| 3.5% (FHA) |
Yes (MIP) |
Slightly higher rate |
High |
| 10% |
Yes |
Moderate rate |
Moderate |
| 20% |
No |
Better rate |
Lower |
| 25%+ |
No |
Best rate tier |
Lowest |
PMI (private mortgage insurance) is typically 0.5–1.5% of the loan annually, added to your monthly payment, until you reach 20% equity.
Minimum requirements by loan type
| Loan type |
Minimum down payment |
Who qualifies |
| Conventional (conforming) |
3% |
Good credit (typically 620+) |
| FHA |
3.5% (580+ credit score) |
Broader credit range |
| VA |
0% |
Veterans and active military |
| USDA |
0% |
Rural areas, income limits |
| Jumbo |
10–20%+ |
Loan above conforming limit |
For most first-time buyers, the real question is not "what is the minimum" but "what is the right amount for my full financial picture."
How to pick the right down payment
- Secure the emergency fund first. Arriving at closing with no savings is dangerous — keep 3–6 months of expenses separate.
- Price out PMI. If you are close to 20%, running the math on a slightly larger down payment to eliminate PMI may pencil out.
- Model the trade-off: compare the PMI cost over time against what you could earn on that same cash invested.
- Check down payment assistance. Many programs are income-qualified — run a search on your state housing finance agency before assuming you need to fund it alone.
- Factor in closing costs (typically 2–5% of the loan) — these are separate from the down payment and due at the same closing.
Common mistakes
Emptying savings for 20%. Having no emergency fund after closing is a larger risk than paying PMI for a few years.
Forgetting closing costs. Down payment and closing costs are two separate cash needs at the same table.
Skipping assistance programs. Many eligible buyers leave free money on the table because they did not search state and local programs.
Not accounting for reserves. Many lenders require 2–6 months of payments in reserves after closing — a cash buffer beyond the down payment.
Treating the minimum as the target. 3% is a floor, not necessarily the optimal amount. Model your specific numbers.
What to skip
- Down payment "hacks" that hide the interest rate. Some builder incentives subsidize the down payment in exchange for a higher rate over 30 years — run the lifetime cost.
- Rushing the close to spend less time saving. A few extra months of saving often yields a meaningfully better payment and rate.
- Borrowing from a 401(k) for a down payment — possible in some plans, but the lost compounding and potential taxes/penalties often make it expensive.
FAQ
Can I use gifted money for a down payment?
Yes, on most loan types — but the gift must be documented with a signed gift letter and bank statements showing the transfer.
Does a bigger down payment always mean a lower rate?
Generally yes, at the major breakpoints (10%, 20%, 25%), but the exact impact depends on the lender and your overall profile.
Can I roll the down payment into the loan?
No — the down payment must be paid upfront with your own or gifted funds. That is the definition of a down payment.
What is the difference between a down payment and earnest money?
Earnest money is a deposit paid when you make an offer, showing good faith. It typically applies toward your down payment at closing.
Where to go next
See what is PMI in 2026, what is closing costs in 2026, and how to save for a down payment in 2026.