The down payment is the portion of the home's purchase price that you pay upfront in cash. The remaining balance is what you borrow via the mortgage. Deciding how much to put down is a balancing act between minimizing your monthly payments and preserving your cash reserves.

The 20% Standard (And Why It's Not a Rule)

Historically, a 20% down payment was considered the gold standard. If you buy a $400,000 home, a 20% down payment is $80,000.

Benefits of 20% Down:

  • No PMI: You avoid paying Private Mortgage Insurance, saving you hundreds of dollars a month.
  • Lower Monthly Payment: Because you borrow less, your monthly payment is smaller.
  • Better Interest Rates: Lenders view you as a safer bet and offer better rates.
  • Instant Equity: You start with a solid 20% ownership stake in the property.

However, saving 20% in today's housing market can take a decade or more. Fortunately, it is not required.

Low Down Payment Options

Most modern home buyers put down significantly less than 20%.

  • FHA Loans (3.5% down): Backed by the government, these loans are popular for first-time buyers and those with lower credit scores.
  • Conventional Loans (3% to 5% down): Standard loans often allow as little as 3% down for qualified first-time buyers.
  • VA and USDA Loans (0% down): Available to eligible military veterans (VA) and buyers in specific rural areas (USDA).

The Cost of a Small Down Payment

While a small down payment gets you into a house sooner, it comes with trade-offs:

  1. Higher Monthly Payments: You are borrowing more money.
  2. PMI Requirement: If you put down less than 20% on a conventional loan, you will pay Private Mortgage Insurance. On an FHA loan, you pay a Mortgage Insurance Premium (MIP) for the life of the loan.

See the Impact of Down Payments

Adjust the down payment slider in our Mortgage Calculator to instantly see how it changes your monthly payment and PMI costs.

Preserving Cash Reserves

A crucial mistake buyers make is draining their entire savings account to reach a 20% down payment.

When you buy a house, you need cash for:

  • Closing Costs (usually 2-5% of the loan amount).
  • Moving expenses and immediate repairs.
  • An emergency fund (3-6 months of expenses).

Being "house poor" (having a house but zero cash) is incredibly stressful. It is often financially safer to put down 10% or 15%, pay the PMI for a few years, and keep a healthy cash buffer in the bank.