It can be challenging to save the money for a down payment on a house, especially if you’re a first-time homebuyer. The minimum down payment isn’t as much as you think, however. Here’s what to know about the average down payment for a first-time buyer and what’s needed to qualify.

Average down payment on a house for first-time homebuyers

Many first-time homebuyers mistakenly believe they must put 20 percent down to qualify for a mortgage. Fortunately, that’s not the case.

The average down payment on a house for a first-time homebuyer was 7 percent in 2021, according to the National Association of Realtors. If you’re looking to buy a $300,000 home, you’d need to come up with $21,000 for a 7 percent down payment.

The average down payment for all homebuyers, not just first-timers, was 13 percent.

How to lower your down payment as a first-time buyer

You might be able to make a lower down payment by applying for low- or no-down payment mortgage.

First-time homebuyer loans with low or no down payment

  • Conventional loans: If your credit score is 620 or higher, you could qualify for a conventional loan with as little as 3 percent down.
  • FHA loans: These government-insured loans have more lenient requirements. You might qualify if you can furnish at least 3.5 percent down.
  • VA loans: VA loans are available to active duty servicemembers, veterans and their families for no money down.
  • USDA loans: USDA loans are available to homebuyers in specific rural areas with a lower or average income. If eligible, you can use one of these loans to purchase a home with no money down.

While a lower down payment makes homeownership more accessible, keep in mind that if you put less than 20 percent on a conventional loan (the most popular option) or an FHA loan, you’ll be required to pay for mortgage insurance, which protects the lender if you were to stop making payments. A lower down payment typically also means you won’t qualify for the lowest possible mortgage rate.

First-time homebuyer down payment assistance programs

Many states and local municipalities offer down payment assistance programs for first-time homebuyers, such as:

  • Grants: A grant is essentially a gift that can help cover your down payment and closing costs. You never have to pay it back.
  • Forgivable loans: A forgivable loan is a type of second mortgage for a specific number of years, typically with a zero percent interest rate. As its name suggests, you don’t have to repay this loan unless you move, sell or refinance before a certain time frame.
  • Deferred payment loans: Like forgivable loans, a deferred payment loan is a second mortgage with a zero percent or low interest rate that you can use for a down payment. However, you’ll be required to repay the loan when you move, sell or refinance.

To find out if you’re eligible for down payment assistance, ask your mortgage lender which programs they accept and whether you qualify.

How much should first-time homebuyers put down?

The amount you should dedicate to a down payment varies depending on your financial situation, level of comfort and other factors.

If you have the means to put 20 percent down, that’s often the most sensible option since you’ll avoid mortgage insurance and potentially obtain a lower interest rate. You shouldn’t do this if it means losing all your savings, however. It’s important to maintain an emergency cushion. You’ll also need funds for closing costs — more on that below — and expenses like furniture and any home repairs after you move.

On the other hand: Because your savings rate might never match the growth in home prices, coming up with just 3 percent down on a conventional loan might be worth it to become a homeowner, even if it means paying mortgage insurance temporarily. Once you have enough equity, you might be able to refinance to a lower rate down the line, too.

Other homebuying costs to consider

While a down payment is typically the largest out-of-pocket expense for first-time homebuyers, it’s not the only one. You’ll also need to cover the closing costs of the mortgage — all the expenses needed to process your loan, like the origination, appraisal and title fees. Closing costs range from 2 percent to 5 percent of a home’s purchase price.

Another cost you might need to account for: cash reserves. Not every borrower needs to have reserves, especially if you have a strong mortgage application otherwise, but it’s still wise to have the savings stashed away if you were to find yourself unable to pay your mortgage. If your lender does require reserves, you could need anywhere from one month to six months’ worth of mortgage payments in the bank.

Bottom line

While putting 20 percent down to purchase your first home has its benefits, it’s not a rule. Depending on the loan type, your credit and other factors, you might qualify for a down payment as low as 3 percent, or be able to avoid a down payment altogether. You might also be eligible for down payment assistance. Overall, your down payment amount should help you achieve your homeownership dreams while also allowing you the flexibility to work on other financial goals, such as adding to an emergency fund or paying off debt.