What Is the Required Down Payment (Deposit) for a Mortgage?

“How much of the purchase price must I pay upfront before borrowing the rest?”

Buying a home is one of the biggest financial commitments most people will ever make. A major part of the process is providing a down payment—often referred to as a deposit—before you can borrow the remainder of the purchase price through a mortgage. Understanding how much you need to put down, and why, can help you plan, budget, and shop for a home with confidence.

This article explains what a down payment is, the typical requirements, how lenders determine deposit minimums, and how your chosen deposit size affects your mortgage options, interest rates, insurance requirements, and long-term costs.

1. What Is a Down Payment?

A down payment is the portion of the home’s purchase price that you pay upfront using your own funds. The mortgage covers the remaining balance.

For example, if a home costs $300,000 and you put down $30,000, your down payment is 10%, and your mortgage is for the remaining 90% ($270,000).

Your deposit represents your financial stake in the property from day one. This matters because:

• It reduces the lender’s risk

• It signals financial responsibility

• It lowers the amount you need to borrow

• It influences your interest rate and monthly repayments

2. Why Is a Down Payment Required?

Lenders require a down payment for a combination of practical and risk-management reasons:

a. Protecting the lender

If the market drops or the borrower defaults, the lender is more likely to recover its loan when the homeowner has invested their own money upfront.

b. Ensuring financial capability

Saving a deposit demonstrates that the borrower can manage money, budget, and delay gratification—skills lenders want to see before issuing large loans.

c. Reducing borrower leverage

The more equity you have relative to the loan size, the lower the risk of becoming “underwater” (owing more than the home is worth).

d. Lowering monthly payments

A higher down payment reduces the loan amount, which makes monthly costs more manageable and decreases total interest over the loan’s life.

3. Typical Down Payment Requirements

Down payment rules vary widely depending on the country, lender, mortgage type, and borrower profile. The following ranges reflect common practices, but your exact requirement will depend on your local market and your financial situation.

Common down payment ranges

What is the most common minimum?

For many buyers—especially first-time homebuyers—the typical required minimum is 5% to 10% of the property price, though some special programs allow lower deposits.

4. How the Required Down Payment Is Determined

Lenders base down payment requirements on several factors. Here’s how each one influences the minimum deposit you’ll need:

a. The purchase price

More expensive homes often require higher percentage deposits, especially above certain loan size thresholds (known as “jumbo,” “high-value,” or “non-conforming” loans).

b. Your credit score

Higher credit scores = lower risk for lenders, which can reduce minimum deposit requirements and interest rates.

c. Your income and debt level

Lenders consider:

• Debt-to-income ratio (DTI)

• Stability of income

• Employment history

Stronger financial profiles may qualify for smaller required deposits.

d. Mortgage type

Different mortgage products come with different rules:

• Conventional loans: Usually 10–20%

• Government-insured loans (if available in your country): Often 0–5%

• Investment properties: Typically require 20–35%

• Second homes: Often 10–25%

e. Occupancy

Primary residences often have lower deposit requirements.
Vacation homes or rentals require more skin in the game.

f. Loan-to-value ratio (LTV) limits

The LTV is the percentage of the home price financed by the mortgage.

Example:
A 90% LTV means a 10% down payment.
A 95% LTV means a 5% down payment.

Lenders cap LTV ratios to control risk.

5. Special Low- or No-Down-Payment Programs

In many countries, governments or private lenders provide programs to help first-time buyers enter the market. These may include:

a. First-time homebuyer programs

May reduce down payment requirements to 3–5%, or provide matching funds, grants, or forgivable loans.

b. Military or veteran loans

Often allow 0% down with favorable terms.

c. Rural development loans

Designed to support rural homeownership; sometimes require no deposit.

d. Shared-equity and shared-ownership schemes

A buyer may only need a small deposit for their share of the property.

e. Deposit assistance or down payment grants

Local governments, nonprofits, or employers sometimes contribute toward your deposit.

These programs generally have conditions such as income limits, purchase price caps, or required homebuyer education courses.

6. Pros and Cons of Different Down Payment Sizes

Putting Less Down (0–10%)

Pros:

• Get into a home sooner

• Requires less cash upfront

• You may qualify for assistance programs

Cons:

• Higher mortgage payments

• Higher interest rates

• Higher long-term cost

• Usually triggers mortgage insurance requirements

• Smaller cushion if home values fall

Putting 10–20% Down

Pros:

• Better interest rates

• Lower monthly mortgage payments

• Less likely to require mortgage insurance

• Wider approval options

Cons:

• Requires significant savings

• May take longer to enter the market

• Could miss out on a rising market while saving

Putting 20%+ Down

Pros:

• Best interest rates

• No private mortgage insurance (PMI)

• Stronger home equity from day one

• Lower total interest costs

• More negotiating leverage

Cons:

• Not everyone can save this amount

• May reduce your cash reserves for emergencies or renovations

• Might not be necessary if interest rates are low

7. What Is Mortgage Insurance and When Is It Required?

Mortgage insurance protects the lender when borrowers put down a small deposit. The names vary (PMI, LMI, CMHC insurance, etc.), but the idea is the same.

When is it required?

Typically when the deposit is less than 20%.

How is it paid?

Depending on the country, it might be:

• Added to your monthly payment

• Due as a lump-sum premium

• Wrapped into the loan amount

Does it protect the buyer?

No. It protects the lender if you default. You still benefit indirectly by being able to buy with a smaller deposit.

8. How Much Should You Put Down?

The “right” down payment differs for each buyer. Consider the following:

a. Your financial stability

Do you have savings left after paying the deposit?
Do you have an emergency fund?

b. Your monthly budget

Larger deposits lower monthly payments.
Smaller deposits increase monthly strain.

c. Market conditions

In a rising market, buying sooner with a smaller deposit may be smart.
In a stagnating market, waiting and saving may be better.

d. Interest rates

High-rate environments reward larger deposits.
Low-rate environments reduce the pressure to save a large deposit.

e. How long you plan to stay in the home

Short stay → flexibility matters more than high equity.
Long stay → lower long-term costs become more important.

9. Practical Examples

Example 1: Entry-Level First-Time Buyer

• Home price: $250,000

• Deposit: 5% ($12,500)

• Mortgage: 95% LTV

A low down payment allows early entry into the market but requires higher insurance and interest costs.

Example 2: Standard Buyer With Stable Income

• Home price: $400,000

• Deposit: 15% ($60,000)

• Mortgage: 85% LTV

This avoids some insurance costs and qualifies for better interest rates.

Example 3: Buyer Aiming to Avoid Mortgage Insurance

• Home price: $500,000

• Deposit: 20% ($100,000)

• Mortgage: 80% LTV

This is the classic “ideal” scenario for excellent terms and predictable payments.

10. Saving for a Down Payment

Strategies to help accumulate your deposit:

a. Automate savings

Set up automatic transfers into a separate account.

b. Reduce debt

Lower debt improves borrowing power and frees cash for saving.

c. Take advantage of tax-favored savings accounts

Some countries offer first-time homebuyer savings schemes with tax perks.

d. Cut discretionary expenses

Redirect savings toward your deposit goal.

e. Side income or gig work

Temporary boosts in income can accelerate your timeline.

f. Gifts or family assistance

Many lenders allow “gifted deposits,” provided documentation is supplied.

11. Common Mistakes When Planning a Down Payment

• Forgetting closing costs
  Buyers often overlook expenses like appraisal fees, inspections, taxes, and legal fees.

• Using all savings for the deposit
  Leaving no emergency fund is risky.

• Ignoring mortgage insurance costs
  PMI/LMI can significantly change monthly payments.

• Not accounting for home repairs or furnishings
  Moving into an empty home adds costs you might not anticipate.

• Assuming you need 20%
  Many buyers wait years unnecessarily, even though 5–10% may be enough.

12. Final Thoughts: How Much Should You Pay Upfront?

There’s no single answer to “What is the required down payment for a mortgage?” because requirements depend on your lender, your location, your financial profile, and the type of home you want to buy.

However, here are key takeaways:

• Typical minimum: 5–10% for many buyers

• Optimal threshold: 20% to avoid mortgage insurance

• Available programs: Some offer 0–5% for eligible applicants

• Bigger deposits = lower risk and lower long-term costs

• Smaller deposits = quicker entry into the housing market

The best down payment is one that balances affordability, financial safety, and long-term cost efficiency.

Whether you aim for the minimum or save up for a larger deposit, understanding how down payments work will help you make a confident, informed decision on your path to homeownership.