Average down payment on a house: Everything you need to know

Despite the myth of 20%, the average down payment on a house in the US in 2021 was 6%. While there are many benefits to making a higher down payment—such as lowering your interest rate and monthly payments and eliminating private mortgage insurance (PMI) payments—there are certainly risks if you are unable to afford it right away.

The down payment you make on a home will depend on your current financial situation and your financial goals.

To help you make the right decision, here is everything you need to know about making a down payment, from the minimum requirements based on loan type to the risks of putting too much down (or too little). To our usual audience of mortgage professionals, this article would be great to send along to any client who has questions about the average down payment on a house, or what they should anticipate for this important step in buying a home.

What is the lowest down you can put on a house?

The lowest you can put down on a house depends on various factors, particularly the loan type. While it was once believed that 20% was the average down payment on a house, that is simply no longer the case. Don’t get us wrong; if you can afford it, there are many advantages (and some disadvantages, too) in making a 20% down payment.

But to give you an idea of the new normal, in 2021 in the United States, the median down payment on a home for first-time home buyers was 6%, according to the National Association of Realtors. There is even a loan type that requires 0% down.

Here is a breakdown of the minimum down payments required on different types of mortgages in the US:

It is important to remember that your down payment is the portion of the cost of your property that you pay up front and represents your initial investment in your home. If you make a larger down payment, you are eliminating a larger portion of the risk by the lender. It is a clear sign that you are invested and are committed to making your mortgage repayments.

Plus, there is at least one clear benefit for you. Often, the higher your down payment, the lower the mortgage rate most lenders will offer to you.

But let’s be real—a 20% down payment is a big ask for most home buyers, which is why there are mortgage types that offer a lower minimum down payment. For instance, Federal Housing Administion loans (FHA loans) require a minimum down payment of just 3.5%. FHA loans are available to all buyers despite your income level.

If you meet certain criteria, you might also qualify for a Veteran Affairs loan (VA loan) or a Department of Agriculture loan (USDA loan)—each offering a minimum down payment of 0%. These mortgage options are referred to as government-backed loans.

Most conventional mortgage loans, however, require a minimum down payment of 5%. While the down payment can vary drastically depending on the loan type and the current market conditions, you should expect to make a down payment of anywhere from $10,000 to $15,000 at least.

Down payment: What you need to consider

Here are some considerations you need to make when thinking about a down payment on a home:

• Minimum down payment required for your loan type
• Emergency funds
• Condition of your home
• Budget for home repairs/improvements
• Retirement
• Other debts

Is 5% enough to put down on a house?

Yes, 5% is enough to put down on a house. In fact, many conventional mortgage loans have a minimum down payment requirement between 3% and 5%. And as mentioned, you may even qualify for a government-backed loan—an FHA loan, a VA loan, or a USDA loan—with a 0% down payment.

Ultimately, there is no one-size-fits-all answer to how much of a down payment you need to put down on a house. Your down payment will depend on your current financial situation and where you want to spend your money in the future.

While a 20% down payment was once thought of as the rule, it now seems more and more to be the exception. There are numerous reasons why making a 20% down payment may be impossible, even if doing so could help save costs.

However, for most, saving up to make that large 20% down payment actually costs more in time. For instance, if you are saving for a down payment and paying rent, the cost of your future home will likely continue to increase. Therefore, making a lower down payment of 5%, say, could be worth it to move into your first home more quickly and begin building invaluable equity.

It may also be wiser to pay down the balances of high-interest credit card debt, or any other debt, first rather than make a large down payment. In that case, making a 5% down payment on a house makes more than enough sense.

Another consideration you should make is the private mortgage insurance, or PMI. If you get a conventional loan with a down payment of less than 20%, PMI will likely be required. While it comes with an extra monthly cost, it is important to weigh the pros and cons against a 20% down payment.

No matter what you decide, it is crucial to weigh the benefits of a large down payment versus a smaller one. To help you with this, you can use an online down payment calculator to help you better understand which would make more sense for you and your financial situation. Your loved ones, your real estate agent, and a mortgage loan officer will also be able to help you with your down payment decision.

Do you have to put down 20% on a house?

The short answer is no, you do not have to put down 20% on a house. The idea of making a down payment of 20% can even be unrealistic to many potential homeowners. As of 2021, the average down payment that most Americans made on a home was 6%, meaning that it is totally normal to put less than 20% down on a house.

Having said that, you may find that making a 20% down payment on a home—if you can afford it—offers many potential benefits and savings. But you will have to weigh the drawbacks to making such a large down payment as well.

Here is a look at the pros and cons of making a 20% down payment.

The pros of a 20% down payment

Making a 20% down payment on a home is thought by many to be the ideal amount for both lenders and loan types. If you can afford it, you will see the following benefits:

1. No private mortgage insurance (PMI)
2. Better interest rates
3. Lower monthly payments
4. Competitive edge over other homebuyers

Let’s take a deeper look at each of the pros of making that 20% down payment:

1. No private mortgage insurance (PMI)

If you want to avoid purchasing private mortgage insurance (PMI), you will have to put down 20%. Why? If you default on your mortgage loan, PMI insurance will protect your lender. You do have the option, even if you put down less than 20%, to request that your lender remove PMI after you have reached 20% equity in your home.

Equity is the amount of the property’s value that you own, and there are two ways to build equity:

• If you repay your mortgage principal by making monthly mortgage payments
• If your property increases in value

Most of the time, lenders will automatically cancel your private mortgage insurance after you have built up at least 22% equity in your home.

2. Better interest rates

The interest rate is the outstanding balance of your mortgage, or the percentage of your principal, that your lender will charge you each month for borrowing the money. However, if you make a higher down payment, you will be seen as less of a risk for lenders.

In other words, if it makes sound financial sense to put down 20% on your mortgage at closing, you will likely be able to secure a lower interest rate. And trust us—it adds up. You could potentially save thousands of dollars over the life of the loan if you secure an interest rate that is even one or two points lower.

3. Lower monthly payments

Ultimately, you will have to borrow less money for your mortgage loan if you make a larger down payment. That also means, if you borrow less, your monthly mortgage payments will be less. The added benefit is that if you have lower monthly payments, you will have more money to budget for repairs and other unforeseen expenses that may arise every month.

4. Competitive edge over other homebuyers

Homebuyers who make a down payment of at least 20% are more attractive to home sellers. A down payment of 20% or more shows that your financial situation is in order and that you will likely have an easier time finding a mortgage lender. This will be especially beneficial if the property you want is in a hot market—you will have the edge over other buyers.

The cons of a 20% down payment

While there are clear advantages, making a 20% down payment is simply not the right move for every homebuyer and is a reason why the average down payment on a house is no longer 20%. The reality is that many buyers simply cannot afford 20% upfront. It may make better financial sense to keep cash on hand for expenses such as future repairs, for instance.

Here are some of the drawbacks of making a 20% down payment:

1. Added financial risk
2. Less money for unforeseen expenses
3. Takes more time to save

Let’s take a deeper look at each of the cons of making that 20% down payment:

1. Added financial risk

If you spend a lot of money on a down payment for your mortgage, you will not have an easy time getting it back, should you need it. It could be wiser to put less money down to build an emergency or rainy-day fund, if you think you may need the money for something critical in the future.

2. Less money for unforeseen expenses

A property that requires only some minor repairs is often viewed as a bargain for new homebuyers, but if you make a larger down payment, such as 20%, you will have less money left over to spend on unforeseen expenses like general maintenance, repairs, or home improvements.

3. Take more time to save

At best, saving for a down payment of 20% or more will take most people months or even years—and it could even take decades. When factoring in what you would spend every month on rent, waiting until you have a 20% down payment can lead to a significant opportunity cost. In the long run, it might make more sense to purchase a property now at 3% to 5% down than to pay rent while trying to save for a 20% down payment.

Is it smart to put a lot down on a house?

Whether it is smart to put a lot down on a house depends on your financial situation and your financial goals. Typically, making a 20% or more down payment on a home is seen as a good idea because it often means you will have to pay less interest over time. It also means that you can eliminate private mortgage insurance (PMI) fees—which can be costly.

In either case, it is essential that you analyze your financial situation with your loved ones and with mortgage professionals to determine whether putting a lot down on a house is the best option for you. As mentioned, waiting until you have saved up enough to make that 20% down payment may force you to pay more in rent than you might save through eliminating PMI and decreasing your interest payments. During the time you are saving, you could also miss out on key moments to get into red-hot housing markets.

The important takeaway is to remember that there is no one-size-fits-all answer to the amount you should put down on a house. Loan types often determine the minimum requirements. Saving up for that coveted 20% down payment could also see you missing out on opportunities to purchase that dream home or tie up your money for repairs further down the line.

Remember: Know your financial situation, know your financial goals, and know the options available to you before deciding how much to put down on your home. You don't have to do 20%, you don't even have to do the average down payment on a house of 6%. What you have to do what works for you.

How much was the down payment on your house? Tell us in the comment section below what it was and what percentage it was of your total mortgage.