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Down Payment Requirements by Loan Type

Down payment requirements range from 0% for VA and USDA loans to 3% for FHA and certain conventional programs, up to 10-30% for jumbo and non-QM products. The down payment amount directly affects mortgage insurance requirements, interest rate pricing, and monthly payment obligations. All down payment funds must be sourced and documented according to program-specific guidelines.

Key Takeaways

  • Conventional loans require as little as 3% down for first-time buyers through HomeReady, Home Possible, or Conventional 97 programs, with 5% as the standard minimum for repeat buyers.
  • FHA loans require 3.5% down with a 580+ credit score; borrowers scoring 500-579 must put 10% down.
  • VA and USDA loans offer zero-down financing for eligible borrowers, though both charge guarantee or funding fees in lieu of mortgage insurance.
  • Jumbo loans typically require 10-20% down, with higher thresholds for very large loan amounts or lower credit scores.
  • Putting less than 20% down on a conventional loan triggers private mortgage insurance (PMI), which adds to the monthly payment until 20% equity is reached.
  • FHA allows 100% of the down payment to come from gift funds on primary residences; conventional programs have more restrictive gift fund rules for certain property types.
  • Seller concessions can offset closing costs but cannot be applied toward the down payment under any major loan program.

How It Works

How Down Payment Percentage Is Calculated

The down payment percentage is calculated against the lesser of the purchase price or the appraised value, not the list price, the assessed value, or the borrower’s offer amount. If a borrower agrees to purchase a property for $350,000 but the appraisal returns a value of $340,000, the lender uses $340,000 as the basis for all loan calculations. A 10% down payment on $340,000 is $34,000, and the maximum loan amount is $306,000. The borrower would still owe the seller $350,000 at closing, meaning the borrower needs $34,000 (down payment) plus $10,000 (the gap between the appraised value and the contract price), plus closing costs. This gap amount is not considered part of the down payment and must be covered separately from the borrower’s own funds.

How Down Payment Affects Interest Rate and PMI

Down payment size has a direct and measurable effect on both interest rate pricing and mortgage insurance costs. On conventional loans, Fannie Mae and Freddie Mac impose loan-level price adjustments (LLPAs) based on the combination of loan-to-value (LTV) ratio and credit score. A borrower with a 95% LTV and a 700 credit score will pay a significantly higher LLPA than the same borrower at 80% LTV. These adjustments are built into the interest rate offered to the borrower, so a larger down payment results in a lower rate even before considering mortgage insurance savings. At 80% LTV (20% down), conventional PMI is eliminated entirely, and the borrower accesses the most favorable LLPA tier. For FHA loans, the mortgage insurance premium (MIP) rate is the same regardless of credit score, but borrowers who put 10% or more down are eligible for MIP cancellation after 11 years rather than paying MIP for the life of the loan .

Sourcing and Seasoning Requirements

Lenders require documentation proving the origin and stability of all down payment funds. Bank statements covering the most recent 60 days (two months) are the standard documentation requirement. Large deposits that are not part of the borrower’s regular income pattern must be explained and sourced with additional documentation, such as deposit slips, transfer confirmations, or sale agreements. Funds are considered “seasoned” when they have been in the borrower’s account for at least 60 days and do not show unusual recent activity. Cash deposits are particularly scrutinized because they cannot be traced to a specific source; borrowers who regularly deposit large amounts of cash may face additional documentation requirements or may need to provide alternative evidence of the funds’ origin.

Down Payment Assistance Programs

Many state and local housing finance agencies offer down payment assistance (DPA) programs that provide grants, forgivable loans, or low-interest second mortgages to help borrowers cover part or all of the required down payment. DPA programs are most commonly used with FHA loans and the conventional HomeReady/Home Possible programs. Eligibility requirements vary by program but typically include income limits, first-time buyer status (though many programs define “first-time” as not having owned a home in the past three years), homebuyer education course completion, and purchase within a specific geographic area. DPA funds are subject to the same documentation requirements as other down payment sources, and the lender must verify that the DPA program is an approved source under the loan program’s guidelines.

Retirement Account and Asset Liquidation for Down Payment

Borrowers may liquidate retirement accounts, investment accounts, or other assets to fund a down payment. When using retirement funds, the borrower should account for any early withdrawal penalties and income tax implications, as these reduce the net amount available for the down payment. Lenders document retirement withdrawals through the distribution statement and the corresponding bank deposit. Some retirement plans allow loans against the account balance rather than withdrawals; a 401(k) loan used for a down payment is treated as a new liability for DTI purposes, which can offset the benefit of the larger down payment. Proceeds from the sale of stocks, bonds, mutual funds, or other investment assets must be documented through brokerage statements showing the sale and the transfer of funds to the borrower’s bank account.

Related topics include conventional loans explained, fha loans explained, va loans explained, usda loans explained, fha vs conventional loans: a complete comparison, and pmi and mortgage insurance explained.

Key Factors

Factors relevant to Down Payment Requirements by Loan Type
Factor Description Typical Range
Loan Program Each loan program (conventional, FHA, VA, USDA, jumbo, non-QM) imposes its own minimum down payment requirement based on borrower eligibility and program rules. 0% (VA/USDA) to 3-3.5% (FHA/conventional) to 10-30% (jumbo/non-QM)
Credit Score Higher credit scores may qualify for lower down payment options. FHA requires 10% down for scores between 500-579 and 3.5% for 580+. 500-579 requires 10% FHA; 580+ qualifies for 3.5% FHA; 620+ for 3-5% conventional
Property Type and Occupancy Primary residences have the lowest down payment requirements. Second homes and investment properties require significantly higher down payments across all programs. Primary: 0-5%; Second home: 10%+; Investment: 15-25%+
Loan-to-Value Ratio and PMI The down payment amount determines the LTV ratio, which directly affects whether mortgage insurance is required and at what cost. PMI required on conventional loans above 80% LTV; eliminated at 80% LTV or below
Fund Source Whether funds come from savings, gifts, DPA programs, or asset liquidation affects eligibility and documentation requirements differently by loan program. 100% gift allowed for FHA primary; conventional may restrict gift-only for certain scenarios

Examples

First-Time Buyer Using FHA with Gift Funds

Scenario: A first-time homebuyer with a 610 credit score is purchasing a $280,000 home. The buyer has $4,000 in savings and receives a $5,800 gift from a parent. The buyer applies for an FHA loan requiring 3.5% down ($9,800).
Outcome: The combined $9,800 meets the FHA 3.5% minimum. FHA allows 100% of the down payment from gift funds on a primary residence, so the gift is permissible. The parent must provide a signed gift letter and documentation of the fund transfer. The buyer qualifies for FHA financing with the minimum down payment, though the buyer will also pay the 1.75% upfront MIP and annual MIP for the life of the loan.

Conventional Buyer Choosing Between 10% and 20% Down

Scenario: A borrower with a 740 credit score is purchasing a $500,000 home and has $120,000 in liquid assets. The borrower considers putting 10% down ($50,000) versus 20% down ($100,000). The lender quotes PMI at $135/month for the 10% down scenario and no PMI for the 20% down scenario. The 20% down option also reduces the interest rate by 0.125% due to lower LLPAs.
Outcome: With 10% down, the borrower retains $70,000 in reserves and pays $135/month in PMI plus a slightly higher interest rate. With 20% down, the borrower retains $20,000 in reserves, eliminates PMI, and accesses better rate pricing. The borrower must weigh the $1,620/year PMI savings and rate improvement against the reduced liquidity and reserve cushion. If the lender requires 6 months of reserves ($18,000), the 20% down option leaves the borrower with minimal reserves above the requirement.

Veteran Purchasing with Zero Down and Funding Fee

Scenario: An active-duty service member with full VA entitlement is purchasing a $350,000 home with no down payment. This is the veteran's first use of the VA loan benefit. The VA funding fee for a first-use, zero-down VA purchase is 2.15% of the loan amount .
Outcome: The veteran finances the full $350,000 purchase price with no down payment. The VA funding fee of $7,525 (2.15% of $350,000) can be financed into the loan, bringing the total loan amount to $357,525. No monthly mortgage insurance is required. If the veteran had put 5% or more down, the funding fee would decrease to 1.5%, and a 10%+ down payment would further reduce it to 1.25% .

Common Mistakes to Avoid

  • Depleting all savings to maximize the down payment without retaining adequate reserves

    Lenders require the borrower to have liquid reserves remaining after closing, typically 2 to 6 months of mortgage payments depending on the property type and loan program. A borrower who drains all accounts to put 20% down but has zero reserves after closing may fail to meet reserve requirements and be denied. The optimal down payment balances PMI elimination against maintaining sufficient post-closing liquidity.

  • Assuming seller concessions can substitute for the down payment

    Seller concessions can only be applied toward closing costs, prepaid items, and discount points. No major loan program allows seller concessions to fund the down payment itself. A buyer counting on the seller to cover the down payment through concessions will discover at closing that additional cash is required. Seller concessions reduce the buyer's closing cost burden, not the down payment obligation.

  • Making large undocumented deposits shortly before applying for a mortgage

    Lenders review 60 days of bank statements and flag any deposit that is not clearly from the borrower's regular income. Large cash deposits, transfers from unverified accounts, or sudden balance increases without a documented source create underwriting issues that can delay or derail the loan. Borrowers should consolidate funds well in advance and maintain a clean paper trail for all money movement.

  • Overlooking down payment assistance programs that could reduce or eliminate the cash requirement

    State and local housing finance agencies administer hundreds of DPA programs that provide grants or forgivable second mortgages to eligible buyers. Many borrowers who qualify for FHA or conventional HomeReady/Home Possible programs also qualify for DPA. Failing to investigate available DPA programs before committing to a larger personal cash outlay is a missed opportunity that can affect long-term financial flexibility.

Documents You May Need

  • Bank statements covering the most recent 60 days for all accounts used for the down payment
  • Gift letter signed by the donor confirming the funds are a gift and not a loan, with donor bank statements showing the ability to give and the transfer
  • Documentation for large deposits (deposit slips, sale agreements, transfer confirmations)
  • Retirement account distribution statements if liquidating retirement funds for the down payment
  • Down payment assistance program approval letter and disbursement documentation if using DPA
  • Brokerage or investment account statements if liquidating securities for the down payment

Frequently Asked Questions

Can I use a personal loan or credit card cash advance for my down payment?
No. Borrowed funds from unsecured personal loans, credit card advances, or lines of credit are not acceptable down payment sources for FHA, VA, USDA, or conventional loans. These create new debt obligations that affect the borrower's DTI ratio and do not represent the borrower's own equity in the transaction. Down payment funds must come from savings, gifts from approved donors, asset liquidation, or approved assistance programs.
What happens if the appraisal comes in lower than the purchase price?
The lender calculates the down payment percentage based on the lesser of the purchase price or appraised value. If the appraisal is lower, the borrower must either increase the cash brought to closing (to cover the gap between the appraised value and the purchase price), renegotiate the purchase price with the seller, or cancel the contract if the appraisal contingency allows it. The gap between the contract price and the appraised value is not covered by the loan and must come from the borrower's own funds.
Is there an advantage to putting more than 20% down on a conventional loan?
Beyond 20%, the primary benefits are a lower loan amount (resulting in a lower monthly payment and less total interest paid) and slightly improved LLPA pricing at 25%+ down. The seller concession limit also increases to 9% at 25% or more down. However, the marginal benefit diminishes compared to the 20% threshold, where PMI elimination and the most significant rate improvements occur. Most borrowers prioritize reaching 20% rather than exceeding it unless they have substantial assets and want to minimize the loan balance.
Do VA loans ever require a down payment?
VA loans do not require a down payment for borrowers with full entitlement, regardless of the loan amount. However, borrowers with reduced or partial entitlement (because of a prior VA loan that was not fully repaid or entitlement that was not restored) may need a down payment if the purchase price exceeds the guaranty coverage provided by the remaining entitlement. Additionally, if the appraised value is less than the purchase price, the veteran must cover the difference in cash, which functions similarly to a down payment.
Can I receive a gift from a friend or non-family member for my down payment?
Rules vary by program. FHA allows gifts from family members, employers, labor unions, charitable organizations, and government agencies, but not from parties with a financial interest in the transaction such as the seller or real estate agent . Conventional loans under Fannie Mae guidelines allow gifts from relatives, domestic partners, and fiancés for primary residences. Friends who are not related to the borrower are generally not acceptable gift donors under conventional guidelines unless the lender's overlay permits it . All gifts require a signed gift letter and documentation of the fund transfer.
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