Down payment for first-time buyers in Arizona — what you actually need.
The "20% down" rule is the single most damaging myth in homebuying. The truth: most first-time Arizona buyers put down 0–5%, not 20%. Here's the real number for your situation, plus where the money can come from.
Quick answer
- VA loan (eligible veterans/active duty): 0% down
- USDA loan (eligible rural areas): 0% down
- Conventional FTHB programs (HomeReady / Home Possible): 3% down
- FHA loan: 3.5% down
- Standard conventional: 5% down
- Conventional with no PMI: 20% down
- Jumbo (above ~$806K in AZ): 10–20% down
With Arizona down payment assistance stacked on top, your real out-of-pocket on most of these can be near $0. More on AZ DPA →
Down payment by loan type — at a glance
| Loan type | Min down | Mortgage insurance | FICO floor |
|---|---|---|---|
| VA | 0% | None | 580 (lender) |
| USDA Guaranteed | 0% | 0.35% annual | 620–640 |
| FHA | 3.5% | 0.55% annual + 1.75% upfront | 580 (3.5% down) |
| Conventional FTHB (HomeReady / Home Possible) | 3% | PMI (~0.4–1%) | 620 |
| Conventional 97 | 3% | PMI (standard rate) | 620 |
| Conventional standard | 5% | PMI (~0.3–0.7%) | 620 |
| Conventional, no PMI | 20% | None | 620 |
| Jumbo (above ~$806K AZ) | 10–20% | None or LPMI | 700+ |
Real dollars at common Arizona price points
Phoenix metro median home price runs around $440K–$480K depending on submarket. Tucson is in the $360K–$400K range. Here's down payment dollars across common AZ price points:
| Purchase price | 3% down | 3.5% down | 5% down | 10% down | 20% down |
|---|---|---|---|---|---|
| $300,000 | $9,000 | $10,500 | $15,000 | $30,000 | $60,000 |
| $375,000 | $11,250 | $13,125 | $18,750 | $37,500 | $75,000 |
| $425,000 | $12,750 | $14,875 | $21,250 | $42,500 | $85,000 |
| $500,000 | $15,000 | $17,500 | $25,000 | $50,000 | $100,000 |
| $650,000 | $19,500 | $22,750 | $32,500 | $65,000 | $130,000 |
These are down payment only. Closing costs (typically 2–4% of the loan) are on top. Closing cost breakdown →
Where down payment money can come from
One of the biggest first-time buyer surprises: the lender doesn't actually need you to have saved every dollar yourself. Acceptable sources include:
- Personal savings: Checking, savings, money market accounts
- Retirement account loans or withdrawals: 401(k) loans (your own money, paid back to yourself), Roth IRA contributions can be withdrawn anytime tax-free, traditional IRA up to $10,000 penalty-free for first-time buyers
- Gift funds from family: 100% of down payment can be a gift on FHA, conventional, USDA. Gift letter required.
- Down payment assistance programs: Arizona has 7+ that work statewide or by region. Full list →
- Sale of personal assets: Stocks, bonds, vehicles. Must be documented (sale proceeds traceable to your account).
- Tax refund: If it's seasoned (in your account 60+ days), no questions. Recent deposit needs sourcing.
- Bonus, commission, RSU vesting: Pay stubs and deposits.
What can't be your down payment: a personal loan, a credit card cash advance, "cash on hand" (literal cash that can't be sourced to a bank deposit), or borrowed money from anyone other than family (and even family loans must be properly documented).
Gift funds — the rules in plain English
Family can give you 100% of your down payment. To make it work cleanly:
- Gift letter: Signed by the donor, stating the amount, your relationship, that no repayment is expected. We provide the template.
- Donor bank statement: Showing the funds existed in the donor's account before transfer. Just one recent statement.
- Transfer documentation: Wire confirmation, cancelled check, or transfer record showing the funds moved from donor to you.
That's it. No tax implication for you (the recipient). The donor may need to file a gift tax form if the gift is over the annual exclusion (~$18,000 in 2024–2025), but in most cases there's no actual tax owed.
Acceptable gift donors on most loans: parents, grandparents, siblings, aunts/uncles, in-laws, fiancé(e), domestic partner. Not acceptable: friends, employers, real estate agents, sellers, anyone with a financial interest in the transaction.
Earnest money — counts toward your cash to close
Earnest money is the "good faith" deposit you make when your offer is accepted. In Arizona, earnest money is typically 1–3% of purchase price, sometimes higher in competitive markets. On a $425,000 home, that's $4,250–$12,750.
Earnest money goes into escrow at the title company. At closing, it's credited back to you: applied toward your down payment and closing costs. So you don't pay it twice; it's part of your total cash to close, just paid earlier.
If you back out of the contract for a non-contractual reason, you can lose your earnest money. If you back out for an inspection contingency, financing contingency, or appraisal contingency, you generally get it back. Your real estate agent walks you through this when you write the offer.
Total cash to close — the real number
Down payment isn't your only out-of-pocket cost. Total cash to close is:
- Down payment (3–5% typical for FTHB)
- Closing costs (2–4% of loan amount)
- Prepaid items: First year of homeowner's insurance, partial property tax escrow, partial interest from closing day to month-end
- Less: Earnest money already paid, lender credits, seller concessions
Concrete example, $425,000 FHA purchase in Phoenix:
| Item | Amount |
|---|---|
| Down payment (3.5%) | $14,875 |
| Closing costs (~3%) | $12,300 |
| Prepaids (insurance, taxes, interest) | $3,200 |
| Subtotal | $30,375 |
| Less: earnest money already paid | −$5,000 |
| Less: seller concessions (3%) | −$12,300 |
| Cash needed at closing | ~$13,075 |
With Arizona DPA stacked on top, the cash-at-closing line can drop to $0–$5,000. DPA details →
Should I put more down than the minimum?
Sometimes yes, often no. The honest tradeoffs:
- More down = lower monthly payment. Each $10,000 of additional down payment saves roughly $60/month at current rates. Over 10 years, that's $7,200, meaningful but not life-changing on a single $10K chunk.
- More down = avoid PMI faster (or entirely). 20% down on conventional means no PMI. 10%+ down on FHA means MIP drops at year 11 instead of life of loan.
- But: Down payment money is illiquid once it's in the home. Job loss, medical emergency, or a sudden opportunity is harder to weather if all your savings went into the house.
- And: In a fast-appreciating market like Phoenix metro, the home builds equity for you regardless. Putting 5% down today and refinancing once you hit 20% LTV via appreciation is often the smarter play than putting 20% down up front.
General rule for first-time buyers: put down the minimum that gets you the loan you want, keep 3–6 months of mortgage payments in savings as a reserve, and let appreciation do the rest.
Common down payment questions
How much down payment do I really need?
0% with VA or USDA. 3% with conventional first-time buyer programs. 3.5% with FHA. 5% with standard conventional. The "20% rule" is a myth from a different era; only ~6% of first-time buyers in the US put 20% down.
Can my down payment be a gift?
Yes, 100% of it on FHA, conventional, and USDA. Just need a signed gift letter from a family member, a recent bank statement from the donor, and proof of the funds transfer.
Do I need 20% down to avoid PMI?
On a conventional loan, yes, 20% down means no PMI. But less-than-20%-down doesn't mean PMI forever: conventional PMI drops automatically at 78% LTV, and Phoenix-area appreciation often pushes buyers there in 3–5 years.
Does my earnest money count toward my down payment?
Yes. Earnest money sits in escrow during the contract period and is credited toward your total cash to close (down payment + closing costs) at the closing table.
Can I use a 401(k) loan or Roth IRA for my down payment?
Yes. 401(k) loans (you borrow from yourself, pay it back with interest to your own account) and Roth IRA contribution withdrawals (penalty-free anytime) are common down payment sources. Traditional IRA allows up to $10,000 penalty-free for first-time buyers. Talk to your tax professional first.
What if I have less than the minimum down payment?
Two paths: (1) Arizona down payment assistance, programs that cover most or all of the down payment for buyers who qualify, available statewide. (2) Gift funds from a family member. Most first-time AZ buyers use one of these.
Can my real estate agent give me a credit toward my down payment?
Sometimes, agent commission rebates are legal in Arizona but can't go directly toward your down payment in most cases. They can apply to closing costs or be credited against your buyer-agent fee. Talk to your agent about how their brokerage handles this.
Will the seller help with my down payment?
Sellers can't directly contribute to your down payment, but they can pay closing costs via "seller concessions," which frees up the cash you would have spent on closing costs to put toward down payment instead. Effectively the same thing. Limits: 3–6% depending on loan type and down payment.
Not sure how much you actually have to put down?
20-minute call. We'll model the lowest-cash-to-close path against the lowest-monthly-payment path and tell you which one fits your situation.