If you’re thinking about homeownership, you may have heard that you must save a 20% down payment before you can consider buying a home. The good news is that’s not true.
In fact, the average down payment on a house is significantly less than that — closer to 12%!
Ready to find out more about your down payment options? Let’s take a closer look at how to purchase a home with less than 20% down.
Average down payment on a house in 2022
The National Association of Realtors found that the average down payment on a house in 2021 was 12%. But depending on the age group, the median down payment amount could be much higher or lower than the 12% mark.
Here’s a closer look:
- Homebuyers ages 22 to 30 put 6% down on their home purchase.
- Homebuyers ages 31 to 40 put 10% down on their home purchase.
- Homebuyers ages 41 to 55 put 13% down on their home purchase.
- Homebuyers ages 56 to 65 put 18% down on their home purchase.
- Homebuyers ages 66 to 74 put 23% down on their home purchase.
- Homebuyers ages 75 to 95 put 21% down on their home purchase.
As you can see, the trend is for younger buyers to put down less on a home purchase. But with age, buyers seem to be able to put a bit more down.
What is the average down payment on a house?
The average down payment for a house is 12%. But when looking at homebuyers ages 22 to 30, that average down payment drops to 6%.
What are the down payment requirements for a mortgage?
Although the average down payment is 12%, that’s well above the minimum required down payment for many types of mortgages.
Here are the minimum down payment requirements for the most popular mortgage loans:
- Conventional home loan. You can obtain a conventional mortgage with a down payment as low as 3%. However, in some cases, lenders require a larger down payment to offset a lower credit score or high debt-to-income ratio.
- FHA loan. The Federal Housing Administration backs FHA loans. Borrowers with a solid credit score can close on an FHA loan with 3.5% down. If your credit score is on the low end, you may have to put 10% down to qualify.
- VA loan. VA loans are backed by the U.S. Department of Veterans Affairs. If eligible for a VA loan based on your military service, you could buy a home with 0% down.
- USDA loan. The U.S. Department of Agriculture backs USDA loans with the goal of offering affordable homeownership opportunities for residents of rural areas. You can obtain this loan with 0% down.
Whether you are a first-time homebuyer or an experienced one, you have plenty of loan options. The exact down payment amounts vary based on the loan type and your unique financial situation. Still, it’s nice to know that you may not have to save up 20% to become a homeowner.
Minimum down payment vs average down payment
The average down payment in 2021 was 6% of the home’s purchase price. It took the average homebuyer three years to build up this impressive sum.
Luckily, there is a way to speed up your journey to closing.
In many cases, homebuyers can find a loan that will accept a down payment lower than 6%. For example, you could pursue a conventional loan with a 3% down payment or an FHA loan with a 3.5% down payment. If eligible, you could even seek out a VA or USDA loan to obtain a home with 0% down.
Saving up for a down payment can force you to put off the dream of homeownership. That delay could leave room for home prices to rise, which might mean you’re stuck saving up even more for your home purchase.
Instead of waiting to save up for a bigger down payment, you may want to consider moving forward with a mortgage loan with a lower minimum down payment, allowing you to lock in a housing cost now. Just remember that this means you’ll face higher monthly mortgage payments after closing.
Do people still make 20% down payments?
Yes, people still make 20% down payments on home purchases. But it’s not the norm, especially among younger age groups.
That makes sense because older home buyers have had more time to stabilize their finances. More time in the workforce means more time to build up a big down payment.
Some younger home buyers are able to put 20% down on a home purchase. But typically, these home buyers are blessed with higher incomes in an affordable area. If you don’t have 20% to put down, that’s okay! You can purchase a home without putting 20% down.
How is private mortgage insurance (PMI) related to your down payment?
If you close on a conventional loan with a down payment of less than 20%, your lender will likely require mortgage insurance. Private mortgage insurance, or PMI, is a monthly surcharge added to your mortgage payment.
If you opt for an FHA loan, you’ll pay a mortgage insurance premium (MIP). This is a double mortgage insurance premium that starts with an upfront cost and continues with an annual payment.
PMI doesn’t protect you. Instead, PMI protects the lender in case you default on the loan. With that, you have to pay extra each month to protect mortgage lenders from a potential default.
And unfortunately, this monthly cost can add up quickly. The good news is that your PMI payments can disappear once you build up 20% in equity. However, building up a loan-to-value ratio (LTV) of 80% can take time, which means you’ll likely be stuck with PMI for a while.
No one wants to face a higher mortgage payment. But PMI might be a necessary evil when pursuing homeownership. It’s often not worth waiting until you’ve built up a 20% down payment just to avoid PMI. That’s because homeowners often see their home value grow while making payments to eliminate PMI more quickly. Plus, locking in a lower mortgage interest rate could help you save more in the long run.
Down payment tips
If you want to buy a home as soon as possible, sticking to a low down payment can speed things along.
Here are some tips to help you reach homeownership sooner rather than later:
- Look at no-money-down mortgage programs. Take a minute to see if you qualify for zero-down loan programs like the VA or USDA loan.
- Apply for down payment assistance. Many states and cities offer down payment assistance programs for eligible individuals. First-time buyers are especially likely to qualify. Check out the options to see if you qualify.
- Use gift money. Although not an option for everyone, you can use a gift from a family member or friend to satisfy the down payment requirement on a mortgage.
- Look for assistance with closing costs. A down payment isn’t the only expense on your horizon. Consider asking the seller to cover some of the closing costs.
Other ways to build up a down payment include selling something, picking up a side hustle, or taking out a loan from your retirement fund. Here’s a full list of creative ways to save up a down payment.
Average down payment FAQ
What’s the average down payment on a house?
According to the National Association of Realtors, the typical down payment on a house is 12%.
As of February 2022, the median home price was $357,300. With that, the average down payment on a house would be around $42,876.
How much do you need for a down payment on a $300,000 house?
The down payment amount you’ll need for a $300,000 house varies based on the loan type you choose. With a VA or USDA loan, you might not need to put down anything depending on your eligibility.
But if you opt for a conventional loan with a 3% down payment, you’d need $9,000. If you choose an FHA loan with 3.5% down, you’ll need a $10,500 down payment.
What is a good amount to put down on a house?
The right amount to put down on a house varies based on your situation. Although you’ll likely need to put down at least 3%, you might decide to put down more. The benefits of making a larger down payment include a lower monthly mortgage payment. Plus, you will be able to avoid PMI if you can put down 20%.
Is it worth putting 20 down on a house?
Putting 20% down on a house could be a smart move if you have that amount of money available. That’s because you would avoid PMI.
But waiting to save up 20% for a down payment can take time. Instead of delaying your homeownership plans, obtaining a mortgage with a lower down payment often makes the most sense. That’s especially true if a hot real estate market threatens to price you out of the area. Or if you can lock in a lower interest rate when mortgage rates are projected to rise.
Even if you have the funds to make a large down payment, it’s not good to drain your emergency savings for this purchase. Homeownership often comes with unexpected expenses. It’s better to put less money down than enter homeownership without any money in your savings account.
Is 7,000 enough for a down payment on a house?
$7,000 can be enough for a down payment. But it depends on the type of loan you qualify for and the loan amount you are seeking.
For example, $7,000 would cover a 3.5% down payment on a $200,000 home. But you’d need to qualify for either a conventional or FHA loan to make this down payment amount. Plus, you’d have to find a new home with a $200,000 sales price. That may or may not be possible based on your location.
Run the numbers for your unique situation to determine if $7,000 is enough for a home down payment.