How much money do you really need for a down payment?
Published November 26, 2025 by Angela Talbot | Reading Time: 5 minutes
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Categories:
- Home Lending
- Saving & Budgeting
Buying your first home can feel like a huge leap. It’s exciting but also a bit nerve-racking—especially when it comes to saving for a down payment. For many first-time homebuyers, the idea of handing over a hefty chunk of cash can feel daunting, even impossible. You’ve probably heard that you must have 20% of the home price saved, which can make the dream of owning a home seem completely out of reach.
But here’s the good news—saving for a down payment doesn’t have to be overwhelming, and that 20% figure isn’t a hard-and-fast rule. Whether you’re a millennial just getting into the housing market or a Gen Z hopeful scrolling through home listing apps, this guide will help demystify down payments and set you up for success in your home-buying journey.
Let’s tackle some common myths, understand what actually affects how much you need, and outline actionable tips to help you save.
Common misconceptions about down payments
You don’t always need 20%
One of the most persistent myths about buying a home is that you need to put down 20% of the purchase price upfront. While a 20% down payment does have its benefits (like avoiding private mortgage insurance or lowering your monthly payments), it’s not a requirement for every buyer.
There are plenty of loan programs with flexible down payment requirements. For example, Conventional loans often allow for down payments starting at 3%—especially if you have a strong credit score. There are also government loans, like Federal Housing Administration (FHA) loans, that allow down payments as low as 3.5%, making homeownership more attainable for those with limited savings. Veterans Affairs (VA) and USDA (United States Department of Agriculture) loans, available to eligible borrowers and their families, don’t require any down payment at all.
Smaller down payments are common
Believe it or not, many buyers opt for smaller down payments. According to the National Association of Realtors, the median down payment for first-time homebuyers in 2022 was just 6%. That’s far from the “ideal” 20% you might have heard about. Depending on your unique financial situation, a smaller down payment could make more sense, allowing you to invest in your future without draining your savings completely.
More mortgages have PMI than you think
Private Mortgage Insurance (PMI) is often required by lenders when your down payment is less than 20% of the purchase price. A lesser down payment typically means a higher loan-to-value (LTV). What is LTV? It’s as simple as it sounds. Loan-to-value is your loan amount divided by your home’s value. PMI is often required on conventional loans with more than 80% LTV (any loan with less than 20% down).
This insurance protects the lender in case you default on your loan, but it’s an additional cost that you’ll need to factor into your monthly mortgage payment expense. PMI typically ranges from 0.3% to 1.5% of the original loan amount annually. The good news is that when you reach 80% LTV, you can often request the removal of PMI, reducing your monthly payments. This will come with a review of your payment history and a new appraisal of your house. It will ultimately be at the lenders discretion to drop it. When you reach 78% LTV, PMI can drop automatically, but again, this is with a good payment history. Understanding PMI and planning accordingly can empower you to approach your down payment options with confidence.
Factors influencing how much you’ll need
Location, location, location
Where you plan to live greatly impacts how much you’ll need to save. Housing markets can vary wildly between cities, states, and even neighborhoods. For example, buying a home in a city with high housing prices (like Nantucket or Wellsley) will likely require a larger down payment compared to homes in more affordable areas or smaller towns.
Researching your target location’s average home prices will give you a clearer picture of what to save. Pay attention to local demand, seasonal trends, and even property taxes, which can influence your overall costs.
Credit score
Your credit score plays a critical role in determining your down payment amount. A higher credit score signals to lenders that you’re a trustworthy borrower, which often allows you to qualify for loans with lower down payment requirements. Lower credit scores, on the other hand, may require you to compensate with a larger down payment to reduce the lender’s risk.
If your credit score could use some work, start improving it by reducing debt, paying bills on time, and reviewing your credit report for inaccuracies. A little effort can lead to big savings when it’s time to secure a mortgage.
Lender requirements
Not all lenders have the same rules. Some might require a higher down payment depending on the loan type or price of the home, while others may offer special programs tailored for first-time buyers. In some cases, even if you are a first-time buyer, a conventional or adjustable-rate mortgage might suit you better than a first-time homebuyer loan. Look into all your options and have conversations with your mortgage lender to find out which is best for your needs.
Tips for saving for your down payment
Build a savings plan
Start by setting a realistic goal. Calculate how much you’ll need for your down payment, plus extras like closing costs and moving expenses. Once you’ve determined the amount, work backward to see how much you need to save monthly to reach that number in your desired timeframe. You can use our handy Savings Goal Calculator to do this easily.
Break it down into manageable chunks. For example, if you need to save $20,000 in two years, you’ll need to set aside about $834 a month. Use budgeting apps or spreadsheets to track your progress. Webster First’s Money Management tool right in our mobile app does just that by having you set your savings goal, then categorizing your spending so you can see where you might need to cut back to reach it. Watch your progress as you save to your goal.
Open a dedicated savings account
Keep your down payment savings separate from your everyday checking account to avoid dipping into it for unrelated expenses. Many banks offer high-yield accounts (like a money market) to help your money grow faster while staying accessible when you’re ready to buy.
Automate your savings by setting up recurring transfers on payday. That way, saving becomes a habit—not an afterthought.
Reduce spending and boost income
Saving for a down payment often means trimming the fat from your budget. Cut unnecessary expenses like unused subscriptions, frequent takeout meals, or luxury splurges. Every little bit of extra savings adds up over time.
At the same time, look for ways to increase your income. Consider picking up a side hustle, freelancing, selling items you no longer need, negotiate a salary raise, or find a new job.
Explore gifts and grants
Many states and local governments offer grants and assistance programs for first-time homebuyers. Some programs provide matching funds for your savings, while others offer outright grants or loans to cover your down payment.
Additionally, check if family members are willing to pitch in as a gift. Just remember that large financial gifts may have tax implications, so consult a financial advisor or tax professional for guidance.
Local insights and resources
Market trends matter
Stay informed about your local housing market. Are home prices trending up, or are they cooling off? Understanding the market can help you decide when to buy and refine your savings plan based on realistic prices.
Seek expert advice
Buying a home is a significant financial decision. Lean on the expertise of local real estate professionals and mortgage advisors. They can offer personalized advice based on your goals and even connect you with resources you might not know existed. Our Loan Center is highly skilled and knowledgeable when it comes to finding the right home lending product for you. Contact them at (774) 823-1665.
Step closer to homeownership
Saving for a down payment doesn’t have to feel like an insurmountable hurdle. By understanding the true requirements, exploring your options, and sticking to a solid savings plan, you can bring the dream of homeownership within reach.
Start by setting small, achievable goals. Even if your savings grow slowly, every step forward gets you closer to the keys to your first home.
For more tips on navigating the home-buying process, connect with experts in your area or explore first-time homebuyer tools online. The road to your dream home starts here—one smart decision at a time.