The basic formula for down payment
Your down payment is a percentage of the home's purchase price that you pay upfront, with the lender covering the rest through a mortgage. To calculate it, multiply the home price by your down payment percentage, then subtract that from the total price to find your loan amount.
For example: if you are buying a house for $300,000 and putting down 20 percent, your calculation is $300,000 × 0.20 = $60,000 down payment. Your mortgage would then be $300,000 − $60,000 = $240,000.
The percentage you choose depends on what you can afford to save, what lenders will accept, and whether you want to avoid mortgage insurance. Most lenders require a minimum down payment, often 3 to 5 percent for conventional loans, though some government-backed programs go lower.
Key Takeaways
- Down payment equals the home price multiplied by your chosen percentage (3 percent to 20 percent is typical), and your mortgage is the home price minus that amount.
- Putting down less than 20 percent triggers private mortgage insurance (PMI), which adds to your monthly payment and varies by lender and loan type.
- Your down payment affects not just the loan amount but also your interest rate, since lenders offer better rates to borrowers with larger down payments.
- Closing costs (typically 2 to 5 percent of the home price) are separate from your down payment and must be budgeted in addition to it.
- First-time buyer programs, gifts from family, and retirement account withdrawals can reduce the amount you need to save yourself.
How down payment percentage affects your total cost
A smaller down payment means a larger loan, which costs more in interest over the life of the mortgage. A 10 percent down payment on a $300,000 home leaves you borrowing $270,000; a 20 percent down payment leaves you borrowing $240,000. Over a 30-year mortgage at the same interest rate, that $30,000 difference in principal translates to tens of thousands of dollars in additional interest paid.
However, a smaller down payment lets you buy sooner with less cash saved. The trade-off is monthly cost: you pay more per month on a larger loan, and if your down payment is below 20 percent, you also pay private mortgage insurance (PMI). PMI protects the lender if you default and typically costs 0.5 to 1.5 percent of your loan amount per year, added to your monthly payment. On a $270,000 loan, that could be $100 to $300 per month.
Your down payment size also influences the interest rate itself. Lenders offer lower rates to borrowers with larger down payments because the lender's risk is lower. A borrower with 20 percent down may receive a rate 0.25 to 0.5 percent lower than one with 5 percent down, which compounds savings over 30 years.
Calculating what you can afford to put down
Start by determining how much cash you have available after setting aside an emergency fund (typically three to six months of expenses). Your down payment should not drain your savings entirely, because you will also need money for closing costs, inspections, and repairs the lender's appraiser may require.
Next, check what down payment percentages your chosen loan type accepts. Conventional loans typically require 3 to 20 percent. FHA loans (Federal Housing Administration) allow as little as 3.5 percent down. VA loans (for military members and veterans) often require zero down. USDA loans (for rural properties) also may require zero down. Each has different rules about what counts as your down payment and what additional costs you must cover.
Then calculate the monthly payment at different down payment levels using a mortgage calculator. Input the home price, your down payment amount, the interest rate your lender quoted, and the loan term (usually 30 years). Compare the monthly payment at 5 percent down versus 10 percent versus 20 percent. This shows you the real cost difference month by month, not just in total interest.
Closing costs are separate from your down payment
Closing costs are fees paid to the lender, title company, appraiser, and other parties involved in the sale. They typically range from 2 to 5 percent of the home price and include the appraisal fee, title search, title insurance, loan origination fee, and attorney fees. These are due at closing, separate from your down payment.
On a $300,000 home, closing costs might be $6,000 to $15,000. Some lenders allow you to roll closing costs into your loan (meaning you borrow the money instead of paying it upfront), but this increases your total loan amount and the interest you pay. Others require you to pay closing costs in cash at closing.
When budgeting, add your down payment and closing costs together. If you have $50,000 saved and the home costs $300,000, a 15 percent down payment ($45,000) plus $9,000 in closing costs totals $54,000 — more than you have. In this case, you would need to either save more, choose a less expensive home, or look for a program that allows the seller to contribute toward closing costs.
Using gifts, loans, and other sources
Money from family members can count toward your down payment on most conventional and government-backed loans, but lenders require documentation. You will need a gift letter from the family member stating the amount, that it is a gift (not a loan you must repay), and their relationship to you. The gift must come from a relative or someone with a financial interest in you, not from an employer or organization.
Some first-time buyer programs offer down payment assistance in the form of grants or forgivable loans. These vary by state and locality. Your state housing finance agency website lists programs available in your area. Some require you to complete a homebuyer education course before you can use them.
Withdrawals from a traditional or Roth IRA may be allowed under the first-time homebuyer rule, which permits you to withdraw up to $10,000 lifetime from an IRA without the early withdrawal penalty (though you still owe income tax on the withdrawal). This is a one-time option, so use it strategically. A 401(k) loan is another option, though it carries the risk that you must repay it quickly if you leave your job.
Down payment requirements by loan type
| Loan Type | Minimum Down Payment | Who It Is For | Other Notes |
|---|---|---|---|
| Conventional | 3–20% | Borrowers with good credit and stable income | Below 20% requires PMI; rates vary by lender |
| FHA | 3.5% | First-time and repeat buyers | Mortgage insurance required for life of loan if down payment is below 10% |
| VA | 0% | Military members, veterans, surviving spouses | No PMI; funding fee applies instead |
| USDA | 0% | Rural property buyers with moderate income | Property must be in may be able to access rural area; may provide fee applies |
Frequently Asked Questions
What is the minimum down payment I can put down?
It depends on your loan type. Conventional loans typically require 3 to 5 percent minimum. FHA loans allow 3.5 percent. VA and USDA loans allow zero down. Check with your lender about their specific minimum, as some require higher down payments for borrowers with lower credit scores or higher debt-to-income ratios.
Does a larger down payment always mean a better deal?
Not always. A larger down payment lowers your monthly payment and eliminates PMI, but it also ties up cash you could invest elsewhere or use for emergencies. If you have high-interest debt or a low emergency fund, a smaller down payment may make more sense than saving for 20 percent down.
Can I borrow money for my down payment?
Most lenders do not allow borrowed money to count toward your down payment because it increases your debt-to-income ratio. Gifts from family are allowed with documentation. Some down payment assistance programs offer grants or forgivable loans specifically for this purpose.
What happens if I put down less than 20 percent?
You will pay private mortgage insurance (PMI), which typically costs 0.5 to 1.5 percent of your loan amount annually, added to your monthly payment. You can remove PMI once your loan balance drops to 80 percent of the home's original purchase price, though you may need to request it and meet other conditions.
Are down payment and closing costs the same thing?
No. Your down payment is the percentage of the home price you pay upfront. Closing costs are separate fees (appraisal, title, loan origination, attorney fees) that typically run 2 to 5 percent of the home price. You must budget for both.