The Quick Answer
A down payment is the upfront cash you pay toward a home purchase. The rest is covered by a mortgage loan.
The formula: Down Payment = Home Price × Percentage. For a $400,000 home at 20% down, that's $400,000 × 0.20 = $80,000 cash, leaving a $320,000 loan.
You don't always need 20% down. Conventional loans start at 3–5%, FHA loans at 3.5%, and VA/USDA loans can require 0%. But anything under 20% triggers PMI (Private Mortgage Insurance), which adds to your monthly cost until you build enough equity.
Use our down payment calculator to run the numbers for any home price and percentage.
How the Math Works
The calculation is straightforward:
- Down payment = Home price × (percentage ÷ 100)
- Loan amount = Home price − down payment
- LTV (Loan-to-Value) = (Loan amount ÷ Home price) × 100
Worked Example: $400,000 Home at Different Percentages
| Down % | Cash Needed | Loan Amount | LTV | PMI? |
|---|---|---|---|---|
| 3% | $12,000 | $388,000 | 97% | Yes |
| 5% | $20,000 | $380,000 | 95% | Yes |
| 10% | $40,000 | $360,000 | 90% | Yes |
| 15% | $60,000 | $340,000 | 85% | Yes |
| 20% | $80,000 | $320,000 | 80% | No |
| 25% | $100,000 | $300,000 | 75% | No |
The jump from 3% to 20% means $68,000 more cash upfront — but it also means no PMI, a smaller loan, and lower monthly payments.
What Is PMI and Why Does It Matter?
Private Mortgage Insurance (PMI) is an insurance policy that protects the lender (not you) if you stop making payments. It's required on conventional loans when your down payment is below 20%.
How Much Does PMI Cost?
PMI rates typically range from 0.5% to 1% of the loan amount per year, depending on:
- Your credit score (higher score = lower PMI)
- The LTV ratio (higher LTV = higher PMI)
- The loan type and lender
Example: A $380,000 loan (5% down on a $400,000 home) at 0.7% PMI costs about $222/month or $2,660/year.
Over the time it takes to build 20% equity — often 5–8 years — that PMI can add up to $13,000–$21,000 in total.
When Does PMI Go Away?
PMI is not permanent:
- Automatic removal: The lender must cancel PMI when your loan balance reaches 78% of the original purchase price (based on the payment schedule, not early payments).
- Borrower request: You can ask for PMI removal when your balance hits 80% of the original value, or if your home's appraised value has increased enough to put your equity above 20%.
- Refinancing: If your home has appreciated, refinancing at an LTV of 80% or less eliminates PMI on the new loan.
Minimum Down Payments by Loan Type
Different loan programs have different minimums:
Conventional Loans
- Minimum: 3% (with qualifying credit, typically 620+)
- PMI: Required below 20%
- Best for: Buyers with good credit who can put at least 5–10% down
FHA Loans
- Minimum: 3.5% (with credit score 580+), or 10% (with score 500–579)
- Mortgage Insurance Premium (MIP): Required for the life of the loan if less than 10% down, or for 11 years if 10%+ down
- Best for: Buyers with lower credit scores or limited savings
VA Loans
- Minimum: 0% for eligible veterans, active-duty service members, and surviving spouses
- PMI: None (VA charges a funding fee instead, which can be rolled into the loan)
- Best for: Eligible military borrowers
USDA Loans
- Minimum: 0% for homes in eligible rural and suburban areas
- Guarantee fee: Required, similar to MIP, typically 1% upfront + 0.35% annually
- Best for: Buyers in qualifying areas with moderate income
The 20% Down Question: Is It Worth It?
The traditional advice is "put 20% down." Here's what that actually means in practice:
Benefits of 20% Down
- No PMI — saves hundreds per month
- Lower monthly payment (smaller loan)
- Often qualifies for better interest rates
- More equity from day one (protection against market dips)
- Stronger offer in competitive markets
Benefits of a Smaller Down Payment
- Buy sooner — no need to save for years
- Keep cash available for emergencies, renovations, or other investments
- Start building equity through homeownership earlier
- Take advantage of favorable market conditions before prices rise further
A Numbers Comparison
For a $400,000 home at 6.5% interest, 30-year term:
3% down ($12,000):
- Loan: $388,000
- Monthly P&I: $2,452
- PMI: ~$226/mo
- Total monthly: ~$2,678
20% down ($80,000):
- Loan: $320,000
- Monthly P&I: $2,023
- PMI: $0
- Total monthly: ~$2,023
The 20% buyer saves $655/month but pays $68,000 more upfront. At that savings rate, recouping the extra cash takes about 8.5 years — not counting the interest saved on the smaller loan.
There's no universally "right" answer. It depends on your savings, local market, how long you plan to stay, and your overall financial picture.
Don't Forget Closing Costs
The down payment is only part of the cash you need at closing. Closing costs typically run 2–5% of the home price and include:
- Lender fees: Origination fee, underwriting, processing
- Third-party fees: Appraisal ($300–$600), home inspection ($300–$500), title search and insurance
- Government fees: Recording fees, transfer taxes (varies widely by state)
- Prepaid items: Property taxes (often 2–6 months prepaid), homeowners insurance (first year), prepaid interest
Total Cash Needed: A Realistic Example
For a $400,000 home with 10% down:
| Item | Amount |
|---|---|
| Down payment (10%) | $40,000 |
| Closing costs (3%) | $12,000 |
| Total cash at closing | $52,000 |
Some closing costs are negotiable, and sellers sometimes contribute toward buyer closing costs (known as seller concessions). But plan conservatively.
Can You Use Gift Money?
Most loan programs allow gift funds for part or all of the down payment, with conditions:
- Conventional loans: Gifts are allowed from family members, domestic partners, or fiancé(e)s. A signed gift letter is required, stating the money is a gift and not a loan.
- FHA loans: 100% of the down payment can come from gift funds. The donor can be a family member, employer, labor union, or government agency.
- VA and USDA loans: Gift funds are allowed with documentation.
Lenders typically require:
- A gift letter signed by the donor
- Documentation of the donor's ability to give (bank statement)
- A paper trail showing the transfer into your account
Important: Gift funds that must be repaid are not gifts — they're loans, and undisclosed loans can disqualify your mortgage application.
Saving for a Down Payment: Practical Steps
If you're working toward a specific down payment target, here's the math:
Target: $40,000 (10% of $400,000)
| Monthly savings | Time to reach goal |
|---|---|
| $500/month | 6 years 8 months |
| $1,000/month | 3 years 4 months |
| $1,500/month | 2 years 3 months |
| $2,000/month | 1 year 8 months |
These assume no investment returns. If you save in a high-yield savings account at 4% APY, the timeline shortens slightly. Use our savings goal calculator to model your specific scenario, or the compound interest calculator to see how your savings grow over time.
Common Mistakes
-
Draining all savings for the down payment. Keep an emergency fund of 3–6 months of expenses separate. An unexpected repair right after closing with no cash reserves is a serious problem.
-
Forgetting closing costs. The down payment is not the total cash needed. Budget an additional 2–5% for closing costs.
-
Not comparing loan programs. The cheapest option isn't always the one with the lowest down payment. Compare total costs over 5–10 years, including PMI, interest rate differences, and fees.
-
Making large purchases before closing. New car loans, furniture on credit, or other large debts between pre-approval and closing can change your debt-to-income ratio and jeopardize the mortgage.
-
Ignoring PMI removal options. If you're paying PMI, track your equity and request removal as soon as you're eligible. Lenders don't always notify you proactively.
FAQ
How much down payment do you need for a house?
It depends on the loan type. Conventional loans require 3–5% minimum, FHA loans 3.5%, and VA/USDA loans can be 0%. Putting down less than 20% triggers PMI on conventional loans.
Is 10% down enough for a house?
Yes, 10% is above the minimum for most loan programs. You will pay PMI on a conventional loan, but the PMI rate is lower than with 3–5% down because the LTV is lower.
How much is PMI on a $300,000 loan?
At a typical rate of 0.5–1% annually, PMI on a $300,000 loan ranges from $125 to $250 per month.
Does a higher down payment get you a lower interest rate?
Often, yes. Lenders may offer rate reductions for LTVs at or below 80%, 75%, or 60%. The exact thresholds vary by lender.
Can I put 0% down on a house?
VA loans (for eligible military borrowers) and USDA loans (for eligible rural areas) allow 0% down. Conventional and FHA loans require at least 3–3.5%.
What happens to my down payment if I don't close?
If the deal falls through, you may lose your earnest money deposit (typically 1–3% of the offer price), depending on the contract terms and contingencies. The down payment itself is not paid until closing.
Should I invest my down payment savings or keep them in cash?
For money you plan to use within 1–3 years, a high-yield savings account or short-term CDs are generally safer than investing in the stock market. Markets can drop right when you need the money.
How do I calculate total cash needed to buy a home?
Add your down payment + closing costs (2–5% of home price) + moving expenses + an emergency reserve. For a $400,000 home at 10% down: roughly $40,000 + $12,000 + $3,000 + emergency fund = $55,000+.
What is the difference between down payment and earnest money?
Earnest money (1–3% of offer price) is a deposit made when you submit an offer, showing you're serious. It's held in escrow and typically applied toward your down payment at closing. The down payment is the full upfront amount paid at closing.
Can closing costs be rolled into the loan?
Some closing costs can be financed into certain loan types (FHA, VA, USDA), but this increases your loan balance and monthly payment. Conventional loans generally require closing costs to be paid at closing.
Related Tools
- Down Payment Calculator — run the numbers for any home price and percentage
- Mortgage Calculator — estimate monthly payments including taxes and insurance
- Loan Amortization Schedule — see a month-by-month principal and interest breakdown
- Savings Goal Calculator — plan how long it will take to save your target
- Compound Interest Calculator — model how your savings grow over time