Your Down Payment: How Much, and Where It Can Come From

The instinct is to throw every dollar you've saved at the down payment. It feels like the responsible thing to do. But the week after you move in, the water heater doesn't care how much equity you have. It cares whether you can pay the plumber.

Don't put it all in

A bigger down payment means a smaller loan and a smaller monthly payment. A smaller one keeps more cash in your pocket and can get you into a home sooner. Only you can decide the balance, but keep money back for three things: an emergency fund (three to six months of living expenses is the usual advice), the costs of moving in, like repairs, furniture and appliances, and the other goals you're saving for. Some loans also require you to have savings left over after closing.

Three ways to cover it

• 1
  A loan built for a smaller down payment. Conventional loans with mortgage insurance and FHA loans both let you put down less than people expect. VA loans, for eligible veterans and service members, have their own down payment rules and no monthly mortgage insurance. How mortgage insurance works.
• 2
  A gift from family. Completely normal, and allowed, with rules. The person giving it signs a gift letter saying it doesn't have to be paid back, and the lender documents where the money came from. Talk to your lender before it moves, not after, and don't deposit it as cash.
• 3
  Down payment assistance. Many programs offer a grant or a second loan that's forgiven if you meet certain conditions, like living in the home for a set time. Each has its own rules, and they change. See the homebuyer programs I work with.

Don't forget closing costs. They're separate from the down payment, and you can estimate them with the closing cost calculator.