How to Save for a House Down Payment: How Much You Need and Where to Keep It
How much down payment you really need (3%, 3.5%, 10% or 20%), the cost of PMI, where to keep your savings, assistance programs, and a step-by-step savings plan.
For most first-time buyers, the down payment is the biggest hurdle to owning a home. The good news: you may need far less than the 20% people often assume. Here's how much you really need, the trade-offs, and a plan to get there.
How much do you need?
| Loan type | Minimum down payment | Notes |
|---|---|---|
| Conventional (first-time buyer programs) | 3% | Private mortgage insurance (PMI) under 20% down |
| FHA | 3.5% (with 580+ credit score) | Mortgage insurance premiums, often for the life of the loan |
| VA (eligible service members/veterans) | 0% | Funding fee may apply |
| USDA (eligible rural areas, income limits) | 0% | Guarantee fees apply |
| Conventional, no PMI | 20% | Lower monthly payment |
On a $350,000 home: 3% is $10,500, 10% is $35,000, and 20% is $70,000.
Don't forget closing costs
Closing costs (lender fees, title insurance, appraisal, prepaid taxes and insurance) commonly run around 2–5% of the loan amount. Also plan for moving costs, furniture and an emergency fund that's still intact after you buy. Homeowners face repairs renters don't.
Is 20% down worth waiting for?
Putting less down means:
- A bigger loan and higher monthly payment
- PMI on conventional loans, often a fraction of a percent to about 1.5% of the loan per year. It can usually be removed once you reach 20% equity (and is automatically removed at 22% based on the original value)
- More total interest over the life of the loan
But waiting years to save 20% can mean paying rent the whole time while home prices change. Many buyers choose a smaller down payment and plan to remove PMI later. Compare scenarios with a lender.
Where to keep your down payment savings
If you plan to buy within the next few years, your down payment shouldn't be in the stock market, which can fall 20% or more right when you need the money. Better options:
- High-yield savings account for flexibility
- CDs or Treasury bills timed to mature before you buy
- I bonds if you're 1+ years away (locked for 12 months). See I bonds.
Compare them in high-yield savings vs money market vs CDs.
A step-by-step savings plan
- Pick your target: price range × down payment % + closing costs.
- Set a deadline and divide. Example: $25,000 in 30 months = about $834 a month.
- Automate it on payday into a separate "House" account.
- Find the money with a budget review. See the 50/30/20 rule.
- Direct windfalls such as tax refunds and bonuses straight to the fund.
- Protect your credit score. A higher score can mean a meaningfully lower mortgage rate. See how credit scores work.
- Pay down other debt to improve your debt-to-income ratio.
Other sources of down payment money
- Down payment assistance (DPA) programs from state housing finance agencies, cities and nonprofits, offering grants or forgivable loans, often for first-time buyers.
- Gifts from family, documented with a gift letter. See gift tax rules.
- Roth IRA contributions can be withdrawn anytime, and up to $10,000 of earnings may be withdrawn penalty-free for a first home (tax may apply depending on age and account age). Think carefully before draining retirement savings.
- 401(k) loans are possible but risky if you leave your job.
Key takeaways
- Many buyers need only 3%–3.5% down; VA and USDA loans can require 0%.
- Less than 20% down usually means mortgage insurance, which can often be removed later.
- Budget for closing costs of roughly 2–5% plus a post-purchase emergency fund.
- Keep down payment money in safe accounts, not stocks, if you're buying soon.
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