How big should your down payment be?

When purchasing a house, a down payment involves paying a portion of the price upfront and securing a loan for the remaining amount needed to complete the purchase.

You’re Not Required to Put Down 20 Percent

However, Melissa Cohn from William Raveis Mortgage explains that this is not necessarily the case.

Depending on your buyer profile and the type of mortgage you choose, it’s possible to make a down payment as low as 3 to 5 percent. Additionally, if you’re obtaining a mortgage through the Department of Veterans Affairs or the U.S. Department of Agriculture, you may be eligible for a loan that requires no down payment at all.

As a homebuyer, especially for the first time, you may have access to lower down payment options offered by lenders through various grants and programs.

Lower Down Payments Lead to Higher Monthly Costs

Choosing to make a smaller initial payment results in higher monthly mortgage payments. This is due to two primary reasons:

1. You’re borrowing more.
   For example, if you put down only 5 percent, you’re financing the remaining 95 percent of the home’s cost. In contrast, a 20 percent down payment means you’re only financing 80 percent of the price, resulting in lower monthly payments.

2. You’ll likely pay mortgage insurance.
   If your down payment is less than 20 percent, you’ll usually need to pay for mortgage insurance to protect the lender in case you default.
   According to Cohn, the cost of mortgage insurance can vary significantly based on your credit score.

   Bankrate reports that private mortgage insurance (PMI) typically costs around 0.5 percent of the loan amount annually. For instance, on a $400,000 loan, PMI might cost about $1,600 per year—or roughly $133 per month.

Receiving a Gift for a Down Payment

If a friend or family member gives you money to help with a down payment, there are certain rules to follow.

Jennifer Beeston from lender Rate explains that the lender must approve the gift. Some loan programs allow gifts only from specific individuals, such as immediate family members or spouses.

She emphasizes that the gift must truly be a gift—not a loan. For example, if your mother gives you $20,000 for a down payment but expects repayment within five years, that’s considered a loan and cannot count toward your down payment.

The timing of the gift also matters. If you received funds as a wedding gift two years ago and they’ve remained in your account, you may not need additional documentation. However, if the funds are newly received, lenders will likely require a gift letter—a written statement confirming that the money is a gift and not expected to be repaid.

Beeston stresses the importance of disclosing any gifts during the mortgage process to avoid issues with large deposits that may not be usable.

Local Down Payment Assistance Programs

she cautions borrowers to read the fine print. Some down payment assistance programs may lead to higher interest rates or additional fees.

Choose a Down Payment That Fits Your Budget

Making a large down payment has benefits, but it’s essential to stay realistic about your financial situation.

Lauren Lindsay, a financial consultant based in Houston, advises buyers not to drain their emergency savings.
“Don’t spend every last dollar on your down payment,” she says. “You’ll still need cash for repairs, furniture, and unexpected expenses.”

Lindsay recommends finding a balance: make a down payment that’s comfortable without leaving yourself financially vulnerable.

As a rule of thumb, she suggests keeping your housing expenses to 25 percent or less of your monthly income—although she acknowledges that may not be realistic for everyone.

Ultimately, she urges buyers to think long-term.
“What’s more important?” she asks. “Owning a home or staying within your financial comfort zone?”
She recommends adjusting spending habits—such as reducing dining out or travel expenses—to prioritize your mortgage payments.