How Much Do You Really Need for a Mortgage Down Payment?

mortgage down payment options

One of the most common questions homebuyers in Monroe and throughout Northeast Louisiana ask is, “Do I really need 20% down to buy a house?”

In most cases, the answer is no.

While putting 20% down can offer certain advantages, many mortgage programs allow significantly lower down payments. The right amount depends on your loan options, your financial situation, and how you want your monthly payment to look over time.

How Much Is Typically Required?

Conventional Loans

Some conventional programs allow down payments as low as 3% to 5%. However, putting down less than 20% usually means paying private mortgage insurance (PMI).

FHA Loans

FHA loans often require as little as 3.5% down and may be more flexible with credit history. They do require mortgage insurance.

VA Loans

Eligible veterans and service members may qualify for loans that require no down payment and do not charge monthly private mortgage insurance. However, most VA loans include a funding fee, which can often be rolled into the loan amount.

USDA Loans

In certain eligible rural areas, USDA loans may allow 0% down, with income limits and property location requirements. USDA loans include an upfront guarantee fee and a small annual fee, which functions similarly to mortgage insurance.

Down Payment vs. Cash to Close

A down payment is not the same thing as “cash to close.” Cash to close usually includes:

  • Your down payment

  • Closing costs (often 2% to 5% of the purchase price)

  • Prepaid items like homeowners insurance

  • Initial escrow funding for taxes and insurance

Focusing only on the down payment percentage can lead to surprises later. For example, even if you qualify for a 3% down payment on a $250,000 home ($7,500), your total cash needed at closing could be significantly higher once closing costs and prepaid expenses are included.

Is It Always Better to Put the Minimum Down?

Lower down payment options can make homeownership more accessible and may allow you to purchase sooner. They can also help preserve savings for:

  • Emergency reserves

  • Home repairs or upgrades after moving in

  • Other financial goals

However, lower down payments often come with tradeoffs:

  • Higher monthly payments

  • Mortgage insurance in many cases (or higher funding fees for VA loans)

  • Slower equity growth

  • Higher total interest paid over time

When a Higher Down Payment May Make Sense

If your budget allows, putting more money down can offer clear financial benefits:

  • Lower loan balance

  • Lower monthly principal and interest payment

  • Reduced or eliminated mortgage insurance

  • Faster equity growth

  • Lower total interest paid over the life of the loan

For buyers planning to stay in their home in Monroe or Ouachita Parish long-term, the savings from a higher down payment can add up over time.

However, using most of your savings to reach 20% can create financial strain, since home purchases often come with new expenses, such as purchasing more furniture, updating the exterior or landscaping, or making necessary repairs.

Planning for the Full Financial Picture

Before deciding how much to put down, it helps to look at the entire situation:

  • How much cash will you have in savings after closing?

  • How comfortable is the projected monthly payment?

  • Will mortgage insurance significantly affect your budget?

  • How long do you expect to stay in the home?

In some cases, a slightly lower down payment that preserves savings may create more financial stability. In other cases, putting more down to reduce long-term costs may make more sense.

Making the Decision That Fits Your Situation

There is no universal “correct” down payment amount. A 3% down payment may work well for one household, while another with more savings may prefer 20% or more to reduce long-term costs.

If you are considering buying a home in Monroe or the surrounding Northeast Louisiana communities, Ouachita Valley Federal Credit Union can walk you through your mortgage options and explain how different down payment levels affect your loan.

To discuss your situation and review available programs, call 318.387.4592 and speak with a local lending professional.

Brenda McMullen