A young couple moves in after considering the average down payment on a house and what loan works for them.
Even though common thinking is that you need to put down 20% of your house price in order to secure a mortgage, many people put down much less. In fact, down payments can start at 0% and certain loans ask for around 3%.

According to NerdWallet, the median down payment for first-time homebuyers in 2020 was just 7%, rising to 16% for repeat home buyers. 

However, the number of people putting at least 20% down has been rising over the last decade. In 2011, 40% of homebuyers made a down payment of at least 20%. By May 2021, this number had risen to 48%. 

Read on to see what down payment could be right for you.

How Much Money You Need to Put Down

The average down payment on a house might be around 16%, but some lenders require much less. The amount you put down will depend on what kind of loan you’re planning to get. 

Federal Housing Administration (FHA) Loans

With a down payment as low as 3.5%, these loans are insured by the FHA. This means that if you default on your loan, the FHA will repay your lender for you. In May 2021, 14% of home loans were FHA. 

Of course, there are pros and cons to this type of loan.

  • Advantages: You need a lower credit score than usual (580 FICO compared to 620 for a conventional loan).
  • Disadvantages: A thorough appraisal process may mean home sellers might be reluctant to accept an FHA loan when there are multiple offers from people with non-FHA loans, and who may be willing to waive the appraisal process.

United States Department of Agriculture (USDA) Loans

This 0% down loan is available to people who live in rural areas. The loan program acts as an incentive for people to move to less populated areas and improve the quality of life there.

Here are the advantages and disadvantages of this loan:

  • Advantages: Low or no down payment, plus low interest rates, make this a highly affordable option for people living in rural America.
  • Disadvantages: There are specific restrictions and conditions on your income level, credit history, credit-to-debt ratio, as well as the size and location of the potential home.

Veterans’ Affairs (VA) Loan

Often with no down payment needed, these loans are insured by the U.S. Department of Veterans’ Affairs, meaning the lender will be repaid in part if you default. The program helps qualified U.S. veterans and active-duty military personnel buy a home. Some surviving spouses may qualify too. In May 2021, 7% of home loans were VA loans. 

Things to consider:

  • Advantages: Provides an affordable, low-interest option to veterans and military personnel who may have little credit history.
  • Disadvantages: As with FHA and USDA loans, not all lenders offer these loans and you may be at a disadvantage in a competitive market.

Conventional Loan

Depending on the lender, the down payment will likely fall between 3% and 20%. A conventional loan is from a private lender, such as a credit union, bank, or mortgage specialist. In May 2021, 74% of home loans were conventional. 

Take a look at the pros and cons of this loan:

  • Advantages: You can choose the lender to suit your needs, without the restrictions of government loans.
  • Disadvantages: Some lenders may require a down payment that is out of your reach or a credit score that is better than what you currently have.

Does the 20% Down Rule Still Matter?

Traditional lenders decided that 20% was the right down payment to help them judge whether you have strong finances, and will be a safe bet for a home loan. 

But, nowadays, some lenders are asking for as little as 0% to 10% down. 

So what figure is right? To answer this, it helps to look back at our question, what is the average down payment on a house? The 2020 median down payment was 12%. The percentage of people who got 100% financing was 13%. 

Pros and Cons of 100% Financing

A big pro of 100% financing is that it is easier and faster to put aside 0% of your home price. However, there are some cons:

  • You’ll be less competitive in today’s hot market as some sellers may prefer a buyer with stronger financing. 
  • Your monthly payment will be higher.
  • You’ll likely need to pay private mortgage insurance (PMI).
  • You’ll have fewer choices of lenders.
  • It will take you longer to build up equity in your home, so you won’t be able to get a home equity loan or line of credit for many years.

Pros and Cons of Minimum 20% Down

The con of putting a minimum 20% down payment is straightforward: it may not be easy to save up to 20% of the home you’d like to purchase. It may even be impossible.

But, if you can pull together the funds, you’ll enjoy several pros:

  • You’ll be able to put in a more competitive offer in today’s hot real estate market, as sellers will be confident your financing will be approved.
  • Your monthly payment will be lower. 
  • You probably won’t have to pay PMI.
  • You’ll have more choices of lenders. 
  • You’ll build up equity more quickly and be able to get a home equity loan or line of credit in a few years.

The Benefits of Putting More Money Down

Generally speaking, the more money you put down on your house, the better terms and conditions you’ll get on your loan. 

Factors that will improve with a higher down payment include:

  • Better interest rates. Low down payment loans usually come with higher interest rates, plus you’ll be paying more interest over the life of your loan because your principal (initial loan amount) was higher.
  • Better loan terms. A conventional loan with fixed-rate interest typically comes in 10-, 15-, and 30-year terms. Low down payment loans may come with shorter terms.
  • No PMI. Private mortgage insurance is usually required for home loans with less than 20% down payment as an extra guarantee that the buyer is financially responsible. It may equal about 0.5% to 2% of your original loan per year.

What Is the Average Down Payment on a House? And How Much Should I Put Down?

Now that we’ve answered your first question – what is the average down payment on a house – it’s time to talk about what you should put down.

First, look at how much the house you want to buy is going to cost. Next, consider how much of that sum you can save up. If you can save 20% or over, great! 

But if you’re itching to get on the property ladder and saving is difficult or impossible for you, it might be worth looking into the government loans (FHA, USDA, VA). 

If you’re not eligible for any of these, you could take a look at other lenders who offer 0% down loans, or low downpayment loans. There are options out there to suit everyone, at every stage of life. After all, everyone deserves a place to call home.

What You Need to Get Approved for a Home Loan