How to Save for a Down Payment: Targets and Timelines

Minimum down payments by loan type

Each of the main US loan types has its own floor, set by the agency that insures, guarantees or buys the loan. The table sums up what the official rule books and program pages say. A lender's own offer can ask for more, so treat these as the lowest possible starting points, not as what you will be quoted.

The fine print that changes the number

• FHA counts from the lower of two figures. HUD's handbook sets the 3.5 percent against the "adjusted value", which on a purchase is the lower of the price (less any inducements to buy) and the appraised value. If the appraisal comes in under the price, the gap comes out of your pocket on top of the 3.5 percent.
• FHA uses the middle score. With three credit scores reported, the lender uses the median; with two different scores, the lower one; with several borrowers, the lowest of their scores. A score just under 580 almost triples the minimum, from 3.5 to 10 percent. The guide what is a good credit score explains where the bands sit.
• The 3 percent conventional options have limits. Fannie Mae's standard 97 percent loans need a first-time buyer on the loan and a fixed rate; HomeReady and Home Possible cap income at 80 percent of the area median instead. Homeownership education is required for HomeReady and Home Possible purchases when all borrowers are first-time buyers.
• VA and USDA are no-down-payment loans, not no-cost loans. The VA lists a funding fee and lender closing fees, and USDA loans are 100 percent financing of the price, not of every cost. Eligibility is narrow by design: military service for VA, location and income for USDA, which runs an address lookup on its program page.

Why 20 percent keeps coming up

Twenty percent is not a legal minimum for anything. It is the point where a conventional loan stops needing private mortgage insurance. The Consumer Financial Protection Bureau (CFPB) says PMI is usually required on a conventional loan when the down payment is less than 20 percent of the purchase price, that it protects the lender rather than you, and that a 20 percent down payment could also get you a lower interest rate. What PMI costs and when it ends is covered in what is PMI and when does it go away. FHA loans carry their own mortgage insurance at any down payment, explained in the FHA section of that guide.

The other effect is the size of the loan. On a $350,000 home with a 30-year loan at an illustrative 6.5%, principal and interest alone look like this:

Going from 5 to 20 percent down takes $52,500 more cash and lowers the payment by about $332 a month before PMI, taxes and insurance. The mortgage calculator adds those other parts for your own price and rate.

The real decision: more down, or sooner

The question most first-time buyers face is not whether 20 percent is better on paper. It is whether the extra years of saving are worth it. While you save, you keep paying rent, prices and rates can move in either direction, and your income may change. Buying sooner with less down means a larger loan and, on most loan types, mortgage insurance. There is no general right answer; the timeline table below shows how long each target takes, and the rent vs buy calculator puts the cost of renting longer next to the cost of buying now.

The cash you need beyond the down payment

A savings target built only on the down payment comes up short at closing. Three other items draw on the same pot, and each has its own guide:

• Closing costs for the lender, title, appraisal and government fees. The range, who pays and which lines may change between the forms are in closing costs explained.
• Prepaids and the opening escrow deposit for property taxes and homeowners insurance, which are part of the cash to close but not fees. What is escrow shows how that deposit is sized.
• Loan-specific charges such as the VA funding fee or FHA's upfront mortgage insurance premium. HUD's handbook lets the FHA premium be added to the loan amount, so it does not have to come out of savings.

It also helps to keep a cushion after closing for repairs and surprises, so the down payment fund should not be the same money as your emergency fund. Sinking fund vs emergency fund explains how to keep the two apart. The home affordability calculator shows which price range your income and debts support, which is the starting point for every number below.

How much to save each month

The table shows the monthly deposit needed to reach each down payment from zero, for three example prices and three deadlines. It uses the same math as the savings goal calculator: a fixed deposit at the end of every month, in an account paying an illustrative 3% a year, compounded monthly. Closing costs are not included.

Two patterns stand out. Doubling the time roughly halves the monthly amount, so the deadline matters as much as the price. And 20 percent is a different kind of goal: on a $350,000 home it takes $1,861 a month for three years, against $326 for 3.5 percent.

How much interest helps

Over a few years, interest does a small share of the work. Here is the $70,000 target (20 percent of $350,000) at 0% and at 3%:

Even over five years, interest covers about 7.2% of the goal at 3%. A better rate is worth having, but the deposit and the deadline decide most of the outcome. To try other rates and see the growth year by year, use the compound interest calculator.

A worked plan

Say you are aiming at homes around $350,000, want 10 percent down ($35,000), already have $10,000 saved and want to buy in 3 years.

1. Check the price. Run your income and debts through the home affordability calculator first. If it says $350,000 is a stretch, the down payment target moves with the price.
2. Pick the loan you expect to use. The minimum table above tells you the floor. If you are aiming for FHA, check your credit score against 580 early, because it decides between 3.5 and 10 percent.
3. Set the target. The down payment plus your own estimate for closing costs and prepaids from the guides above. In this example we keep the $35,000 down payment alone so the numbers stay comparable.
4. Work out the monthly amount. With $10,000 already in an account at 3%, the savings goal calculator gives about $640 a month for 3 years. Starting from zero it would be $930, so the head start saves about $291 a month.
5. Revisit every few months. Prices, rates and your income change. Re-run the numbers when they do, and adjust the deadline or the target rather than letting the plan drift.

Where the money can come from besides your savings

The CFPB lists the main options. Each has rules, and your lender will want to know about all of them.

• Gifts. Lenders generally want proof of where the money came from and a signed statement that it is a gift, not a loan. For FHA loans, HUD's handbook allows gifts from family members, an employer or labor union, a close friend with a clearly documented interest, a charity, or a government agency with a homeownership program, and the gift letter has to name the donor, the relationship, the amount and state that no repayment is required. Freddie Mac's Home Possible allows down payment and closing cost funds from gifts, grants and employer programs.
• Retirement accounts. The CFPB notes you may be able to withdraw up to US$10,000 from a traditional, SIMPLE or Roth IRA for a first-home purchase without the usual early-withdrawal penalty, and advises thinking twice, because money taken out no longer grows for retirement. It also notes that Roth IRAs work differently and suggests checking with a tax or financial advisor first. 401(k) vs IRA vs Roth IRA covers how the account types differ.
• Borrowing the down payment. The CFPB cautions that it raises your total debt and your monthly payments, which lenders count when they decide how much you can borrow.
• Who cannot pay it. On an FHA loan, the 3.5 percent minimum investment may not come from the seller, from anyone else who benefits from the sale, or from anyone reimbursed by them. Sellers can contribute toward other costs where the rules allow, but not toward that minimum.

Down payment assistance

The CFPB says many states, local governments and nonprofits run programs to make homeownership more affordable. Many focus on first-time buyers with low or moderate incomes; others are aimed at public service workers or particular neighborhoods. Some offer down payment assistance that can be combined with a regular FHA or conventional loan, some lend money directly through subsidized loans, and local nonprofit or government organizations may offer a second mortgage on special terms that replaces part or all of the down payment. The CFPB also notes that many state and local programs require mortgage insurance. HUD's handbook also allows a government entity to provide the FHA minimum investment itself when it originates the loan through one of its homeownership programs.

Programs differ so much that the useful questions are the same everywhere:

• Is it a grant, a loan you repay monthly, a deferred loan due when you sell or refinance, or a loan that is forgiven over time?
• What happens if you sell, refinance or move out within the first years?
• Are there income limits, price limits, a homebuyer education class or a required lender list?
• How long does approval take, and does it fit your closing date?

The CFPB suggests talking to a HUD-approved housing counselor about local options; its special loan programs page links to a search for one, and asking lenders in your area what programs they work with is another starting point. Assistance can cut the savings target a lot, so check before you set the monthly amount.

Where to keep the savings

Money you plan to spend on a house in two to five years has one job: to be there, in full, on closing day. That points to deposit accounts.

• Insured deposits. The FDIC covers US$250,000 per depositor, per insured bank, for each account ownership category, including savings accounts, money market deposit accounts and CDs. At federally insured credit unions, the NCUA's Share Insurance Fund covers accounts up to the same US$250,000. FDIC insurance limits shows how joint accounts and the categories add up.
• Not insured. The FDIC lists stocks, bonds, mutual funds, annuities, life insurance and crypto assets as not covered, even when a bank sells them.
• Compare by APY. The annual percentage yield includes compounding, so it is the number to compare between accounts. APR vs APY explains the difference, and the CD calculator shows what a fixed-term deposit pays by its maturity date. If you use CDs, check the early-withdrawal terms and line up maturities with your expected closing.
• Interest and taxes. Savings interest can count as taxable income; is savings interest taxable covers when and how it is reported.
• Keep it findable. A separate account for the down payment makes the balance easy to track, and easy to document if a lender asks where the money came from.

Frequently asked questions

Sources

• HUD: FHA Single Family Housing Policy Handbook 4000.1, issued August 12, 2026 (Minimum Required Investment of at least 3.5 percent of the Adjusted Value; MDCS 580 or above eligible for maximum financing, 500 to 579 limited to 90 percent LTV, below 500 not eligible; sources of the MRI; gift rules and gift letter) (PDF)
• Fannie Mae Selling Guide B2-1.3-01: Purchase transactions (95.01 to 97 percent LTV: at least one first-time homebuyer, fixed rate up to 30 years, one-unit principal residence; does not apply to HomeReady)
• Fannie Mae Selling Guide B5-6-01: HomeReady mortgage loan and borrower eligibility (LTV up to 97 percent; qualifying income at or below 80 percent of area median income; homeownership education when all borrowers are first-time buyers)
• Freddie Mac: 3 percent down payment, Home Possible (down payment as low as 3 percent; income limited to 80 percent of area median income; gifts, grants and employer assistance allowed)
• U.S. Department of Veterans Affairs: VA-backed purchase loan (no down payment if the price is not above the appraised value; no PMI; funding fee may apply; Certificate of Eligibility)
• USDA Rural Development: Single Family Housing Guaranteed Loan Program (100 percent financing in eligible rural areas; income up to 115 percent of median household income; primary residence)
• CFPB: What is private mortgage insurance? (required on a conventional loan with less than 20 percent down; possible lower rate with 20 percent down)
• CFPB: Where can I get money for a down payment on a home? (saving longer, documented gifts, IRA withdrawals up to US$10,000, borrowing, second mortgages from local programs, VA and USDA)
• CFPB: Special loan programs (state, local and nonprofit programs; down payment assistance usable with FHA or conventional loans; housing counselors)
• NCUA: Share insurance coverage (accounts at federally insured credit unions insured up to US$250,000)
• FDIC: Understanding deposit insurance (US$250,000 per depositor, per insured bank, per ownership category; covered and not covered products)

General information based on the sources above, not tax, legal or financial advice.

Written by Tobias. Updated October 21, 2026.