Saving for a home down payment is one of the largest financial goals most households will pursue.
In 2026, median home prices in many U.S. markets remain elevated compared to pre-pandemic levels, making down payment accumulation a multi-year effort for many buyers.
The amount you need depends on the type of mortgage you pursue: conventional loans typically require 5–20% down, FHA loans require a minimum of 3.5%, and some VA and USDA loans require no down payment for eligible borrowers.
Beyond the down payment, buyers need to plan for closing costs (typically 2–5% of the loan amount) and cash reserves.
This guide covers how to calculate your down payment target, the trade-offs between putting down 20% versus less, first-time buyer assistance programs, and the most effective savings vehicles and strategies for reaching your goal.
Start by determining how much house you can afford before setting your savings target.
How Much Do You Need for a Down Payment?
The conventional wisdom that you need 20% down to buy a home is no longer accurate for most buyers — though 20% does carry specific advantages. Different loan programs allow for much smaller down payments:
- Conventional loan (Fannie Mae/Freddie Mac): Minimum 3–5% down, though 20% avoids private mortgage insurance (PMI)
- FHA loan: Minimum 3.5% down with a credit score of 580+; 10% down with a score of 500–579
- VA loan: 0% down for eligible veterans, active duty service members, and surviving spouses
- USDA loan: 0% down for eligible buyers in qualifying rural and suburban areas
According to the CFPB's home buying preparation resources, understanding your loan options and associated costs is a critical first step before setting a down payment savings target.
The 20% Down Payment: Pros and Avoiding PMI
Putting 20% down on a conventional loan eliminates the requirement for private mortgage insurance (PMI), which typically costs 0.5–1.5% of the loan amount annually.
On a $350,000 loan, PMI might add $145–$438 per month to your payment.
Avoiding PMI reduces your monthly payment and total cost of ownership.
However, requiring 20% down delays homeownership by years for many buyers in high-cost markets, and the opportunity cost of accumulating a large cash down payment (versus investing those funds) should be considered.
A 20% down payment also reduces your loan-to-value ratio, potentially qualifying you for slightly better interest rates.
Conforming Loan Limits for 2026
The Federal Housing Finance Agency (FHFA) sets conforming loan limits that determine how large a mortgage can be purchased by Fannie Mae and Freddie Mac.
For 2026, the baseline conforming loan limit is expected to be adjusted from the 2025 level of $806,500 (for single-unit properties in most of the country), with higher limits in designated high-cost areas.
Loans above the conforming limit are "jumbo" loans, which typically require larger down payments and stronger credit profiles.
The FHFA publishes current conforming loan limits by county annually.
First-Time Home Buyer Programs and Down Payment Assistance
Many buyers — particularly first-time buyers — can access down payment assistance programs (DPA) that provide grants, forgivable loans, or low-interest second mortgages to help cover the down payment and closing costs.
These programs are administered at the federal, state, county, and municipal levels.
According to HUD's homebuyer assistance resources, state Housing Finance Agencies (HFAs) administer many of the most substantial down payment assistance programs, often targeting first-time buyers or buyers below certain income thresholds.
A HUD-approved housing counselor can help you identify programs available in your specific market and assess your eligibility.
FHA Loans and First-Time Buyers
FHA loans, insured by the Federal Housing Administration (part of HUD), are among the most accessible mortgage products for first-time buyers with moderate credit or limited down payment funds.
The 3.5% minimum down payment requirement makes the entry cost substantially lower than conventional 20% down.
However, FHA loans require both an upfront mortgage insurance premium (MIP) — currently 1.75% of the loan amount, added to the loan balance — and an annual MIP that typically ranges from 0.55% to 1.05% of the loan amount, depending on loan size and term.
Unlike conventional PMI, FHA MIP is required for the life of the loan for most borrowers who put less than 10% down.
State and Local Down Payment Assistance Programs
State housing finance agencies in all 50 states offer some form of down payment or closing cost assistance.
These programs vary widely in eligibility requirements, benefit amounts, and structure (grants, deferred-payment loans, or forgivable loans that do not need to be repaid if certain conditions are met).
Income limits, home price limits, and buyer education requirements are common.
Because these programs are administered locally, the best source for current program information is your state's HFA or a HUD-approved housing counselor.
Strategies for Saving Your Down Payment
Once you have established a down payment target, the key is accumulating those funds as efficiently as possible within your timeline.
High-Yield Savings Accounts for Down Payment Funds
Down payment savings should generally be kept in safe, liquid, FDIC-insured accounts — not in the stock market, which carries risk of loss over short-to-medium time horizons.
A high-yield savings account at an online bank can offer competitive annual percentage yields of 4–5% or higher in recent years, depending on the federal funds rate environment.
A dedicated savings account for your down payment, separate from your emergency fund and general savings, helps keep the funds mentally and practically earmarked.
Certificates of Deposit (CDs) for Longer Timelines
If you have a defined home-buying timeline of 12–24 months or more, a certificate of deposit can offer slightly higher yields than savings accounts in exchange for keeping funds locked for a specified term.
CD laddering — opening multiple CDs with staggered maturity dates — provides a balance of yield and periodic liquidity.
Early withdrawal penalties are a consideration; ensure your timeline is firm before locking funds in a CD.
Automate and Accelerate Savings
Automating a monthly transfer to your down payment savings account on each payday removes the decision burden and ensures consistent progress.
Directing tax refunds, bonuses, and other windfalls to the down payment fund can significantly accelerate the timeline.
Reducing non-essential expenses — particularly larger variable costs like dining, travel, and entertainment — during the active saving phase can compress the time needed to reach your target.
Gift Funds and Assistance from Family
Many mortgage programs allow some or all of the down payment to come from gift funds provided by family members.
FHA loans are particularly flexible in accepting gift funds.
There are typically requirements around documenting the gift (a signed gift letter confirming the funds are not a loan) and the donor's ability to provide the funds.
If you anticipate receiving gift funds, discuss requirements with your mortgage lender early in the process to ensure proper documentation is in place.
Don't Forget Closing Costs and Cash Reserves
Many first-time buyers focus exclusively on the down payment and are surprised by the additional costs required to close on a home.
Closing costs — which cover items such as loan origination fees, title insurance, appraisal, home inspection cost, escrow account setup fees, and prepaid items like property taxes and homeowners insurance — typically range from 2–5% of the loan amount.
On a $350,000 loan, closing costs might be $7,000–$17,500.
You may also want to review closing cost deductibility to understand which costs may be deductible.
Additionally, most lenders require proof of cash reserves after closing — typically 2–6 months of mortgage payments held in liquid accounts.
These reserves demonstrate to lenders that you can continue making payments if you experience a temporary income disruption.
Planning your savings target to include the down payment, closing costs, and required reserves ensures you are genuinely prepared for closing without depleting all your liquid assets.
The CFPB's closing process guide provides a detailed breakdown of costs to expect at closing.
Frequently Asked Questions
How long does it take to save for a down payment?
The timeline depends on your target down payment amount, your savings capacity, and local home prices.
A 5% down payment on a $300,000 home requires $15,000; at a savings rate of $500 per month, that would take 30 months (2.5 years).
A 20% down payment on the same home requires $60,000; at the same savings rate, that would take 10 years.
Down payment assistance programs, windfalls, and higher savings rates can significantly shorten the timeline. Our guide on saving money faster covers tactics for accelerating your savings rate.
Is it better to put 20% down or less on a home?
A 20% down payment eliminates PMI (saving potentially hundreds per month), reduces the loan amount, and may improve mortgage terms.
A smaller down payment allows you to buy sooner and retain cash for other goals — including an emergency fund, which is important to maintain after home purchase.
The right answer depends on your housing market, how long you plan to stay in the home, your savings outside the down payment, and your financial priorities.
Neither choice is universally right; both involve trade-offs.
What are down payment assistance programs and how do I qualify?
Down payment assistance (DPA) programs provide grants, forgivable loans, or deferred-payment loans to help eligible buyers cover down payment and closing costs.
Most programs target first-time buyers (typically defined as those who have not owned a home in the past three years) with income at or below local limits.
Home price limits also apply.
Application and eligibility requirements vary by program. HUD-approved housing counselors can help you identify programs in your area and guide you through the application process. HUD's website lists approved counseling agencies by state.
Can I use a Roth IRA for a down payment?
Yes, within limits. Roth IRA contributions (not earnings) can be withdrawn at any time without taxes or penalties, since those dollars were already taxed.
Additionally, the IRS allows a one-time, lifetime withdrawal of up to $10,000 in Roth IRA earnings without the 10% early withdrawal penalty for a qualified first-time home purchase — though taxes may still apply if the account has not been open for at least 5 years.
Traditional IRA holders may also access up to $10,000 penalty-free (but not tax-free) for a first-time home purchase.
Consult IRS Publication 590-B and a tax advisor for details specific to your situation.
What credit score do I need to buy a house?
The minimum credit score required depends on the loan type. FHA loans are available with credit scores as low as 500 (with 10% down) or 580 (with 3.5% down). Conventional loans typically require a minimum score of 620, though scores of 740+ generally qualify for the most favorable interest rates.
VA loans do not have a government-set minimum score, though individual lenders typically require at least 580–620.
A higher credit score generally results in lower interest rates, which can significantly reduce the total cost of the mortgage over its term.
To understand your score level, read our guide on what a 730 credit score means for mortgage eligibility.
Also consider the amortization schedule of your loan to see how interest and principal payments are structured over time.
Sources & References
- Consumer Financial Protection Bureau. 'Prepare to Buy a Home.' ConsumerFinance.gov. — https://www.consumerfinance.gov/owning-a-home/process/prepare/
- U.S. Department of Housing and Urban Development. 'Local Homebuying Programs.' HUD.gov. — https://www.hud.gov/buying/localbuying
- Federal Housing Finance Agency. 'Conforming Loan Limit Values.' FHFA.gov. — https://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limit.aspx
- Consumer Financial Protection Bureau. 'The Closing Process.' ConsumerFinance.gov. — https://www.consumerfinance.gov/owning-a-home/process/close/
- U.S. Department of Housing and Urban Development. 'FHA Loan Requirements.' HUD.gov. — https://www.hud.gov/program_offices/housing/sfh/lender/origination/mortgage_terms
Last updated: April 27, 2026