Understanding Down Payments: How Much Do You Really Need?
May 1, 2025
When buying a home, many people assume they need to save up a 20% down payment. While that amount may have been the standard in the past, today’s homebuyers have a variety of options that can make purchasing a home more accessible, especially for first-time buyers.
Let’s break down the facts about down payments, including low-down-payment loans and programs that require no down payment at all.
What Is a Down Payment?
A down payment is the portion of the home’s purchase price that you pay upfront. The remaining balance is covered by your mortgage loan. While a larger down payment can reduce your monthly payments and loan costs, it’s not always necessary to put down 20%.
Low Down Payment Loan Options
Conventional Loans
Many conventional loans allow down payments as low as 3%, particularly for first-time buyers. These loans typically require private mortgage insurance (PMI) if your down payment is less than 20%, but this can be canceled once you reach 20% equity.
FHA Loans
Backed by the Federal Housing Administration, FHA loans require a minimum down payment of 3.5%. These loans are popular with first-time buyers and those with lower credit scores since they offer more flexible qualification criteria.
USDA Loans
If you're looking to buy a home in a rural or suburban area, a USDA loan may be a great option. These loans require no down payment and offer competitive interest rates, though they have location and income eligibility requirements.
Zero-Down Payment Programs
VA Loans
VA loans, backed by the U.S. Department of Veterans Affairs, offer zero-down financing for eligible active-duty service members, veterans, and their families. These loans don’t require PMI and typically offer favorable terms, making homeownership more attainable for those who have served.
Down Payment Assistance (DPA) Programs
Many state and local governments offer grants, loans, or other forms of down payment assistance. These programs often cater to first-time buyers and those with moderate incomes. Here in Colorado, two of the most popular programs are:
CHFA (Colorado Housing and Finance Authority)
CHFA provides down payment assistance through second mortgage loans or grants. Qualified buyers can receive up to 3% or 4% of their first mortgage amount, depending on the loan type. Key features:
- Available with CHFA first mortgage loans (FHA, VA, USDA, and conventional)
- May be a repayable second loan or a forgivable grant (depending on program)
- Minimum credit score of 620 (some exceptions may apply)
- Must complete a CHFA-approved homebuyer education course
Metro DPA
Metro DPA is a locally managed down payment assistance program available in many areas across the Denver Metro region. It offers up to 5% assistance
toward your down payment and closing costs, with no repayment required if you stay in the home for three years. Highlights include:
- Forgivable second mortgage after 3 years of ownership
- No first-time homebuyer requirement
- Works with FHA, VA, USDA, and conventional loans
- Income limits apply (currently around $150,000 depending on household size and program updates)
Both programs are designed to increase access to homeownership in Colorado by reducing upfront costs and supporting borrowers who may not have the savings for a traditional down payment.
Factors to Consider When Choosing Your Down Payment
Your Budget
Consider how much you’ve saved and what you can comfortably afford. A larger down payment can lower your monthly payments, but it’s important not to deplete your savings entirely.
Loan Requirements
Different loan programs have varying down payment requirements. Work with your lender to explore options that match your financial goals.
Mortgage Insurance
Loans with smaller down payments may require mortgage insurance, which adds to your monthly costs. However, some programs, like VA loans, don’t have this requirement.
Debunking the 20% Myth
While a 20% down payment can help you avoid PMI and lower your interest rate, it’s not a hard rule. Many buyers successfully purchase homes with much smaller down payments. The key is finding a balance that works for you, based on your financial situation and long-term goals.
Take the Next Step
Understanding your down payment options is a crucial part of the homebuying process. At DNVR Lending, we’re here to guide you through your choices and help you create a personalized plan. Whether you’re looking for a low down payment loan or exploring zero-down options like CHFA and Metro DPA, we’ll work with you to make your homeownership dreams a reality.
Contact us today
to learn more about how down payment assistance can help you purchase your Colorado home.
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