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If you’re scrolling through home listings and dreaming of a place to call your own, you probably know that mortgage lenders traditionally have wanted to see borrowers put down 20% of a home’s purchase price. But what are the benefits and challenges of a down payment that’s less than 20%? And can you purchase a home with a lot less money down (even nothing) in today’s economy?

Learn the answers to these questions and more here. This insight could help you qualify for a mortgage and ultimately turn your dream house into a reality.

What Is a Down Payment?

A down payment is an initial, upfront cash payment for some portion of the cost of the home you are purchasing. It is usually paid at the closing, with the remainder of the balance on the home paid in the form of a home mortgage loan. What portion of the home’s cost a buyer pays as a down payment can have a big impact on the mortgage loan amount, rate, and terms.

What Is the Typical Down Payment on a House?

Conventional wisdom says you should buy a house with a 20% down payment. But the national average down payment on a house is actually less than 20% and it is even possible to buy a home with no money down or considerably less than 20%, as you’ll see below.

First-time homebuyers are especially likely to put down less than 20%.

How Much Do I Need to Put Down on a House?

Mortgage programs that will finance your purchase with as little as 3% down can make homeownership possible even for those with smaller nest eggs. Mortgages like these can be either government-backed or offered by commercial lenders. You may also find offers that require 5% or 10% down.

When accessing these loans, it’s typically a requirement that you use the home as a primary residence. You may also encounter minimum credit score requirements to qualify; one in the 500s might qualify you for one program, while a score of 680 or higher could open other opportunities.

Of course, keep in mind that the more you pay upfront toward the cost of your home, the lower your monthly costs will likely be.

Consider Your Budget

The question of how much should you put down on a house is really a subset of a bigger home-buying question: how much house can you afford?

Many house hunters use a popular formula to determine how much to spend. They take their household gross annual income (before taxes) and multiply it by 2.5. They could also use a home affordability calculator to get a more precise estimation.

So, if your household income is $150,000, the maximum purchase price, using this formula, would be $375,000. Note that this isn’t a formula used by a lender; it’s a general rule of thumb.

A lender often wants your total housing expense — monthly principal, interest, property taxes, and insurance, plus any homeowners association fee or private mortgage insurance — to be, at most, 28% of your gross monthly income.

So, using the figure of $150,000, that would equal a maximum housing expense of $3,500 per month ($150,000/12 x 28%).

Your estimated housing payment will depend on how much of a down payment you make. Let’s say the house you want costs $329,000. If you wanted to put down 20%, you would need $65,800, plus closing costs, to swing the deal. So the first question is whether you have or can get those funds easily enough.

What if you don’t have that kind of cash for the down payment? If you could afford a smaller down payment plus closing costs and still meet the income requirements, your next step would be to see which lenders offer home loans for less than 20% down.

Understand How Your Down Payment Impacts Your Mortgage Payment

Making a down payment of less than 20% can affect your monthly mortgage costs. Private lenders that provide conventional loans to homebuyers who put down less than 20% almost always require the purchase of private mortgage insurance (PMI).

PMI, which insures the lender, adds a fee to the monthly mortgage payment.

Borrowers usually choose to pay PMI monthly, and it is included in the monthly mortgage payment. Expect to pay about $30 to $70 per month for every $100,000 borrowed, Freddie Mac says.

Once you have accumulated 20% equity in your home, you may be able to get rid of PMI as long as you have a good payment record, the property has held its value, and there are no liens on the property. This applies to borrower-paid mortgage insurance. You can’t cancel lender-paid mortgage insurance because it is built into the loan.

Estimate Your Monthly House Payment

The amount of your down payment also affects how much money you borrow to fund the total cost of a house. Plus, with a lower mortgage amount, you’ll pay back less interest over the life of the loan. Use the calculator below to test different down payment amounts and see how they would change the estimated mortgage payment.

Do I Have to Put 20% Down on a Home?

By now you’ve probably realized that you don’t have to have a 20% deposit on hand in order to buy a home. But what are the minimum down payment requirements? That depends on the type of loan you have. For those who need a boost to enter the ranks of homeownership or have an opportunity to get a dream house before they have saved 20%, lower down-payment options can be invaluable.

Conventional Loans

A conventional, fixed-rate home mortgage loan is accessible with a down payment as low as 3% – 5% for certain homebuyers. These loans typically have a term of 10, 15, 20, or 30 years.

Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage, combined with a down payment of 5% or more, can make homeownership possible for those with more limited savings and incomes, but it is important to plan for future cost increases. How it works: The ARM typically has a lower initial interest rate than a comparable fixed-rate mortgage. After anywhere from 3 to 10 years, the rate “resets” up (or down) based on current market rates, with caps dictating how much the rate can change in any adjustment.

Because borrowers may see their rate rise, they need to be sure they can afford the larger payments that could come after the introductory years if they don’t plan to sell their house, pay off the loan, or refinance the loan.

Can You Buy a House With No Money Down?

The truth is, it is possible to become a homeowner with zero or very little money down. If you want to get a mortgage with no money down, a government-backed loan is likely your best bet.

These loans are insured by the federal government, so your lender doesn’t assume the risk of loaning money to someone who might default. They know Uncle Sam is standing behind the loan. These mortgages can be a win-win. They encourage citizens to become homeowners even if they don’t have a down payment, and they make banks more likely to lend under these no-down-payment conditions.

Recommended: How to Buy a House With No Money Down

FHA Loans: 3.5% – 10% Down

Another home loan option is a Federal Housing Administration (FHA) loan. The FHA doesn’t directly make mortgage loans. Instead, certain lenders offer FHA loans that are backed by a government guarantee. Because of this guarantee, lenders will typically offer more flexible guidelines for mortgage approvals, including lower down payments.

In general, if you have a credit score of 500 to 579, the minimum down payment required for FHA loans is 10%. If your credit score is 580 or above, the minimum down payment is 3.5%.

FHA loans require an annual mortgage insurance premium (MIP) and an upfront MIP of 1.75% of the base loan amount. You can estimate the upfront and ongoing MIP with an FHA Mortgage Calculator.

VA Loans: 0% Down

If you’re a military veteran, active service member, or, in some cases, a surviving military spouse, you may qualify for a U.S. Department of Veterans Affairs (VA) mortgage loan without any down payment required.

This program was created by the U.S. government in 1944 to help people returning from military service purchase homes.

Monthly mortgage insurance is not required, but some borrowers pay a one-time funding fee. For a first VA-backed purchase or construction loan, the fee is 2.15% of the total loan amount if you put less than 5% down. It’s 1.5% of the loan amount if you put 5% to 10% down.

What Is the Minimum Down Payment on a House?

The average down payment falls below 20%, so if you can’t cough up 20%, you’re in good company. Use this handy reference to see which opportunity might be a good fit for your budget and lifestyle.

In general, it makes sense to put down as much as you can comfortably afford. The more you put down, the less you’ll be borrowing, which translates into more equity in the house and lower monthly payments.

On the other hand, it doesn’t always make sense to empty the bank in order to put down the largest down payment possible. That’s because you’ll likely have moving expenses, plus you’ll need to pay closing costs, which can vary by purchase price, state in which the property is located, interest rate chosen, lender processing fees, and more.

Furthermore, the home you’re moving into may need cosmetic repairs, or you may want to redecorate, add new landscaping, and so forth. Plus, you’ll probably want to keep an emergency fund to pay for unexpected costs.
If this doesn’t all seem doable, you may want to look for a more affordable house for now and save up for your dream house. Or, if you can wait a while before buying, then you can create a savings plan to build up a down payment.

Tips to Help You Save for a Down Payment

For 69% of recent first-time buyers, their down payment came from savings and a fortunate 25% used a gift or loan from a friend or relative toward the down payment, according to a 2024 National Association of Realtors® report.

Saving can be difficult, especially for first-time homebuyers. But if you are ready to be a homeowner, now is the time to get serious about saving for a down payment on your first home.

Here are steps to consider taking:

1.    Track your spending, including fixed expenses (rent, utilities, student loan and car payments, and so forth) and variable ones (like dining out, clothes shopping, and hobbies). Add expenses that you pay annually or semiannually, breaking those down into monthly amounts.

2.    Make a budget that helps you to trim unnecessary expenses. (As you do this, you might consider if it makes sense to refinance student loans or consolidate credit card debt into a personal loan.)

3.    Brainstorm ways to boost your income. Asking for a raise may be an option, or you might start a side hustle to bring in additional cash.

4.    Figure out what you can save each month, both for your down payment and to build up how much you should have in your emergency fund.

5.    Set a timetable for your plan.

Recommended: First-Time Homebuyer’s Guide

The Takeaway

If you can manage a down payment but it’s south of 20%, know that you’re in good company. Finding a mortgage with less than 20% down is often doable, though fees usually come along for the ride.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQs

Is 10% down payment on a house enough?

For some buyers, especially first-time buyers, a 10% down payment is adequate to purchase a home. The amount a buyer pays upfront does affect their mortgage amount, rate, and fees.

Do I have to put 20% down on a house?

Many buyers purchase a home without putting down 20% of the cost upfront.

Does the down payment reduce the loan amount?

Yes, the more money you put toward a down payment, the less you need to borrow.

What is the optimal down payment for a house?

The optimal down payment for a house depends on your personal finances, the location where you are buying, and what mortgage programs you qualify for. A mortgage calculator can help you see how different down payment amounts affect a mortgage.

How would a 20% down payment affect a home loan?

Putting down 20% will help you avoid the added expense of private mortgage insurance, and, of course, the less you borrow to fund your purchase, the lower your monthly payments will be.

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SOHL-Q225-032

Asian options (also known as average strike options or average options) are a type of exotic option whose price is based on an asset’s average price over time rather than its spot price at expiration. In average strike options, the strike price is based on the average price of the underlying asset over a set period, rather than being fixed at the outset.

Asian options can help mitigate price volatility, making them useful for businesses managing currency or commodity risks. Lower price volatility also means they tend to be less expensive than standard options.

What Is an Asian Option?

Asian options are a type of exotic option that trades differently than standard American or European options.

American and European options allow holders to exercise an option at a predetermined strike price. The key difference between them is timing: American options can be exercised anytime before expiration, while European options are only exercised on the expiration date.

Asian options, on the other hand, are priced based on the average price of the asset over a period of time, and like European options, they are exercised only on the expiration date.

The specific terms of an Asian option, such as the averaging period and method, are negotiable. There are two different types of Asian options: average strike options and average price options.

Average strike options are issued with an unknown strike price, which is determined based on the average price of the underlying asset at selected time intervals.

Average price options, conversely, are issued with a known strike price, but an unkown payoff. With these, the payoff is determined at expiration, based on the average price of the underlying asset over a period of time. Both types of Asian options may be priced according to arithmetic or geometric averages.

Who Buys Asian Options?

Asian options are commonly used by businesses that deal with price-sensitive goods or currencies. These options buyers are often in sectors like energy, agriculture, and international trade — areas where prices can swing sharply due to market volatility or seasonal fluctuations.

Because Asian options can help smooth out short-term price spikes, they can help protect against rate manipulation, inefficient pricing in thinly traded markets, or sudden shifts in currency exchange rates.

How Asian Options Work

Like standard options, the price of a call or put in Asian options depends on the price of the underlying asset at expiration. Unlike standard options, the price of an Asian option is determined by the average price of the underlying asset over a specified period, rather than the spot price at expiration.

The way the average price is calculated in an Asian option, such as the averaging method and time intervals, is defined by the contract. It’s common for Asian options to define average either as an arithmetic or geometric mean over a period of time (e.g., 30 days), which impacts pricing.

Maximum Payoff

Like standard options, the potential payoff for an Asian option depends on whether a trader is buying a call or a put option. Even though the prices of Asian options are determined by the average price instead of the spot price, the payoff structure for Asian options works in the same way.

For a call option buyer, the maximum payoff is theoretically unlimited, since there is no limit on how high the stock’s price can go. However, in practice, the payoff is usually constrained by the average price calculation over the option’s life.

For a put option buyer, the maximum payoff can be seen if the stock’s price declines significantly (or even goes to zero), though losses are generally capped at the initial investment.

Maximum Loss

Losses for buyers of Asian options are generally limited to the premiums paid at the initiation of the trade, making them a defined-risk strategy. Because of the average effect that reduces volatility, purchase premiums are often lower than those for standard options.

Breakeven

The breakeven price of an Asian option depends on the strike price of the option and the premium initially paid for the option. If a buyer paid $1.50 for a call option with a strike price of $50, the breakeven price would be $51.50 (the strike price of $50 plus the $1.50 in premium paid originally).

If the stock’s average price when the option expires is above $51.50, the investor could earn a profit on the option investment.

The breakeven point for an average strike option is less predictable than for standard options, as it is not known until expiration. But it follows the same principle, as it is determined by the final strike price and the premium paid.

Pros and Cons of Asian Options

Here are some of the pros and cons of trading with Asian options:

Asian Option Pricing

Because Asian options are priced based on an average price instead of the spot price at expiration, they experience relatively lower volatility and are generally less expensive than standard options. This is because averaging several price values over time may dampen out extreme values. Because volatility is a key measure of the price of an option, the lower volatility of Asian options generally means lower prices as well.

How Asian Option Pricing Works

The pricing of Asian options is calculated using an average value, which can be determined through either an arithmetic or geometric mean. In practice, pricing the value of Asian options can be complex, requiring advanced calculations, but the following examples illustrate how these options work.

Asian Options Pricing Example – Average Price Option

Assume that an investor buys a 90-day call option with a strike price of $50. This option costs $1.25, and the average price is defined as the arithmetic mean of the underlying asset price taken every 30 days.

The stock has a price of $51.00, $48.50, and $52.00 at the 30, 60, and 90-day mark. The arithmetic mean of those three prices is ($51 + $48.50 + $52) / 3, or $50.50. Since the option has a strike price of $50, the option closes with a value of $0.50 (the calculated price at expiration minus the strike price, $50.50 – $50).

Because the investor purchased the option for $1.25, in this scenario, they would take a loss of $0.75 per share. Since one options contract typically covers 100 shares, this would result in a total loss of $75.

If the arithmetic mean were $53.00, the option would be worth $3.00 at expiration. After subtracting the $1.25 premium paid, the investor would gain $1.75 per share, ) or $175 total on a standard contract. As with standard options, if the average price of the underlying asset is below the strike price (for a call option), the option expires worthless.

Asian Options Pricing Example – Average Strike Price Option

An investor buys a 90-day call option for a stock. This option costs $1.25, and the average strike price is defined as the arithmetic mean of the underlying asset price taken every 30 days.

The stock has a price of $51.00, $48.50, and $52.00 at the 30, 60, and 90-day mark. The arithmetic mean of those three prices is ($51 + $48.50 + $52) / 3, or $50.50. Therefore, at expiration the strike price will be $50.50. The option closes with a value of $1.50 per share ($52.00 – $50.50).

Because the investor originally purchased the option for $1.25, in this scenario, they would have a gain of $0.25 per share. The value of the option at expiration is $1.50, and after subtracting the $1.25 premium paid, the net gain is $0.25 per share. Since one options contract typically covers 100 shares, this would result in a total profit of $25.

The Takeaway

Unlike standard options, which are valued based on the spot price of the underlying asset at expiration, Asian options are valued based on the average price of the underlying asset over a specified period before expiration.

Because the value of an Asian option is derived from an average of prices, it generally experiences less price volatility. Lower volatility generally leads to cheaper prices than standard options.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

Are Asian options cheaper?

Asian options are often (but not always) cheaper than standard American or European options due to their lower volatility, which results from using an average price rather than the spot price at expiration. Because an average price is used, Asian options are generally less volatile, and typically cheaper as a result.

How are Asian options priced?

Rather than using the spot price at expiration, Asian options are priced using an average value, typically calculated using an arithmetic or geometric mean over time.

Why can’t Black-Scholes models value Asian options?

The Black-Scholes pricing model is one of the most common ways to price standard American or European options. To price options, the Black-Scholes method makes a variety of assumptions about the price of the underlying stock. One assumption in the Black-Scholes model is that the stock’s price will move according to Brownian motion. Because arithmetically averaged Asian options do not follow the assumption of Brownian Motion, the standard Black-Scholes pricing model does not apply.

Photo credit: iStock/Boris Jovanovic