Down Payments Explained

While it helps to have a larger down payment, the amount will depend on what you can afford. In order to qualify for certain home loans, you may need to meet minimum down payment requirements. Let's look at how to calculate your down payment and tips on how to save toward that amount.

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What's a down payment?

Your down payment is the amount of the home's sale price you pay up front to the seller before you close on a loan. A mortgage is used to pay the rest.

Did you know?

If you'll be using gifted money for your down payment, you'll want to ask the donor for a gift letter. This lets your mortgage lender know that the money isn't a loan, and doesn't need to be paid back.

How much do you need for a down payment?

Generally, buyers are encouraged to pay 20% of the property's price as down payment. If you're buying a house for $250,000, a 20% down payment would work out to $50,000 – meaning your mortgage would cover the remaining $200,000.

A 20% down payment has advantages:

Avoid Private Mortgage Insurance. Typically, loans with a down payment less than 20% require mortgage insurance.

A smaller loan with lower monthly payments. The larger your down payment, the smaller your mortgage – which means smaller monthly payments.

Lower interest rate. By borrowing less, you could qualify for a lower interest rate due to your loan-to-value (LTV) ratio being lower.

Lower overall costs. The larger your down payment is, the more you'll save over the long term. That's because you'll pay less in interest over the life of your loan.

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Calculate how much you need for a down payment

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Total down payment needed

$40,000.00

Citi recommends a down payment of
20%

What if you have less than 20%?

You can still qualify for a conventional loan without a 20% down payment, but chances are you’ll need to buy mortgage insurance. There are also other options worth exploring that require a smaller (or no) down payment, like 3.5% minimum for FHA loans, 0% for VA loans and 3% minimum for Citi's HomeRun mortgage.

Saving for a down payment

Saving for a down payment can take a while. We've put together a few tips that could help you get there faster:

Set up a savings account

Consider setting up a separate savings account for your down payment. This might make it less tempting to spend since it's not part of your larger pool of money. It also makes it easier to monitor your expenses.

Schedule direct deposits

Calculate how much you need for a down payment, then use automatic transfers to deposit a set amount into your savings account every month.

Prioritize expenses

Identify areas where you can spend less so that you can put more money into your savings. The best way to see where you can cut back is to create a budget. If you haven't already, this is the perfect time to start.