How Much Down Payment Do You Need for a Home?

What different down payment sizes mean for your loan amount, monthly payment and mortgage insurance.

The old advice to put 20% down is a useful benchmark, not a rule. Many buyers put down less, and several loan programs allow small down payments. What matters is how the amount you put down changes your loan, your monthly payment and your total cost.

Why the down payment matters

A larger down payment reduces the amount you borrow, which lowers your monthly payment and the interest you pay. It can also help you qualify for a better rate and avoid private mortgage insurance, or PMI.

Example: a $400,000 home

Using a 30-year loan at 6.5%, here is how principal and interest compares at different down payments:

• 5% down ($20,000): loan $380,000, payment $2,401.86
• 10% down ($40,000): loan $360,000, payment $2,275.44
• 20% down ($80,000): loan $320,000, payment $2,022.62

Going from 5% to 20% down lowers the payment by about $379 a month, before PMI is considered.

What is PMI?

On conventional loans, lenders commonly require PMI when the down payment is below 20%. It protects the lender if you default. Costs vary with credit score and down payment, and it is often expressed as a yearly percentage of the loan amount. As an illustration only, 0.5% a year on a $380,000 loan would be about $158 a month. PMI can typically be removed once you reach enough equity, so ask your lender about the rules.

Low down payment programs

Some government-backed and conventional programs allow down payments as low as a few percent, and some eligible borrowers may qualify for no-down-payment options. Rules, fees and eligibility change, so check current terms with a lender or the program's official site.

Do not drain your savings

Putting every dollar into the down payment can leave you without a cushion. Keep money for closing costs, moving expenses, repairs and an emergency fund. A slightly smaller down payment with healthy reserves may be safer than 20% down and no savings.

Closing costs are separate

Closing costs, such as lender fees, title insurance and prepaid taxes, are paid in addition to the down payment, so budget for both.

Where down payment money can come from

• Savings and investments.
• Gifts from family, with proper documentation.
• Down payment assistance programs.
• Proceeds from selling another home.

Finding your number

Compare scenarios with the mortgage calculator by changing the down payment and watching the payment and total interest. Then use the home affordability calculator to see what price range fits your income.

How the down payment affects your rate

Lenders often view larger down payments as lower risk, which can lead to better pricing. Even when the rate does not change, a bigger down payment reduces the interest you pay simply because you borrow less. On the $400,000 example, 20% down means borrowing $80,000 less than at 5% down, which cuts interest by tens of thousands of dollars over 30 years at the same rate.

Think about your timeline

If you plan to stay in the home a long time, building equity faster through a bigger down payment may be attractive. If you might move in a few years, preserving cash may matter more. Weigh your plans, job stability and savings before deciding.

Check eligibility early

Programs differ by income, location, property type and credit. Speak with a lender or a HUD-approved housing counselor early so you know which options fit your situation and how much cash you will really need at closing.

Gifts and documentation

Lenders often require a gift letter and proof of the funds source, so keep records organized and avoid large unexplained deposits.

Important

This guide is educational and not individualized financial advice. Loan terms vary by borrower, lender and market, so confirm details in the official disclosure.