Down payment and reserves
How much you need, where it can come from, and why what is left over matters as much as what you put in.
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Minimums
Deposit by programme
Twenty percent is a myth
Reserves left after closing matter as much as the deposit itself.
Mortgage down payment requirements start lower than most people think. The 20 percent rule is the most persistent myth in home buying. It is not a requirement. It is the point at which most programs stop charging you mortgage insurance.
Lenders also care about what remains in your account after closing. That is called reserves, and running yourself to zero can fail a file that would otherwise pass.
Minimum down payment by program
What each program actually requires
Twenty percent is not a requirement. It is the point where mortgage insurance stops.
By program
What you actually need
| Program | Minimum down | Mortgage insurance below 20% |
|---|---|---|
| VA | 0% | None monthly, one-time funding fee |
| USDA | 0% | Upfront and annual guarantee fee |
| Conventional | From 3% | PMI, cancellable at about 20% equity |
| FHA | 3.5% | MIP, often for the life of the loan |
| Jumbo | Often 10 to 20% | Varies by lender |
Scroll sideways to see all columns.
Program details and eligibility: compare all five →
The money
Where it can come from
Your own savings
The simplest case. Lenders want to see it has been in the account long enough to avoid sourcing questions.
Gift funds
Family help is allowed on most programs, but it needs a gift letter confirming it is not a loan.
Retirement accounts
Withdrawals and loans against a 401k are usually acceptable, though a 401k loan adds a monthly payment to your ratio.
Sale of an asset
A car or investment sale works with a paper trail showing the sale and the deposit.
Down payment assistance
State and local programs exist in most areas. Terms vary widely, so read what happens if you sell early.
Not a cash gift with no trail
Money that appears without explanation has to be sourced, and it can stall a file.
The other half
Reserves, and why they matter
What reserves are
Money left after your down payment and closing costs. Lenders count it as a cushion against a missed payment.
How much
Varies by program and loan size. Two months of housing payments is common, and jumbo loans often want six to twelve.
Retirement accounts usually count
Often at a discounted value, since not all of it is accessible.
Why it catches people out
A buyer with exactly enough for the down payment and nothing else can fail on reserves alone.
Also worth knowing
Seller concessions and who pays what
Your deposit is not the only cash at closing, and it is not always all yours to find.
Seller concessions
Sellers can contribute toward closing costs, within limits set by each program and by your down payment size. In a slower market this is negotiable and routinely used.
What concessions do not do
They do not reduce your deposit. They protect the reserves you keep behind it, which is the test buyers most often fail.
Gift funds
These can cover the deposit itself on most programs, with a gift letter confirming the money is not a loan.
Sourcing the gift
The donor may be asked to show where the money came from. What you need in cash, all in.
Questions
Common questions
How much do you need for a down payment?
VA and USDA allow zero for eligible borrowers. Some conventional programs start at 3 percent and FHA requires 3.5 percent. Twenty percent is not required, it simply avoids mortgage insurance.
Can my down payment be a gift?
On most programs yes, with a gift letter confirming the money is a gift rather than a loan. The donor may also need to show where it came from.
What are mortgage reserves?
Money left in your accounts after the down payment and closing costs. Lenders treat it as a cushion, and some programs require a specific number of months.
Do I need 20 percent down to buy a house?
No. Twenty percent removes mortgage insurance on most programs, but it is not a qualification requirement.
Can I use a 401k for a down payment?
Usually yes, through a withdrawal or a loan. A 401k loan adds a monthly payment that counts in your debt-to-income ratio.
Keep reading
Related guides
Loan programs
Conventional, FHA, VA, USDA and jumbo compared.
Affordability calculator
See what your deposit reaches as a price.
How to qualify
The four factors lenders weigh together.
Independent sources
- Consumer Financial Protection Bureau — down payments, gift funds and mortgage insurance
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