A good down payment is usually between 10 and 20 percent of the home's purchase price, but you can buy with as little as 3 percent down.
The amount that makes sense depends on three things: how much you have saved, what interest rate you can lock in, and whether you can afford the monthly payment that results. A larger down payment lowers your monthly cost and saves you money on interest over time. A smaller down payment lets you buy sooner but means you'll pay private mortgage insurance (PMI) — an extra monthly fee that protects the lender if you stop paying.
There is no single "good" number. A 20 percent down payment avoids PMI entirely and is the traditional benchmark. But many people buy with 5 to 10 percent down and come out ahead because they buy earlier and build equity faster, even with PMI added to the bill. Others save longer to reach 15 or 20 percent because the monthly payment matters more to their budget.
Key Takeaways
- Down payments range from 3 to 20 percent of the purchase price depending on the loan type, and anything below 20 percent triggers PMI.
- A larger down payment reduces your monthly payment and total interest paid, but delays when you can buy.
- PMI typically costs 0.5 to 1.5 percent of the loan amount per year and can be removed once you reach 20 percent equity.
- Your actual monthly cost depends on the down payment size, the interest rate you're offered, the loan term, and property taxes and insurance in your area.
- First-time buyer programs, gifts from family, and savings accounts all affect what down payment is realistic for you right now.
How down payment size changes your monthly payment
The larger your down payment, the smaller the loan you need to borrow. A smaller loan means a smaller monthly payment. On a $300,000 house, putting down $60,000 (20 percent) means you borrow $240,000. Putting down $30,000 (10 percent) means you borrow $270,000 — an extra $30,000 that you'll pay interest on for 15 or 30 years.
The difference in monthly payment is real but not always huge. At a 7 percent interest rate on a 30-year loan, the 20 percent down scenario costs roughly $1,600 per month in principal and interest. The 10 percent down scenario costs roughly $1,800 per month — plus PMI of about $200 to $300 per month. So you're paying $400 to $500 more each month, but you bought the house 10 years earlier and started building equity immediately.
The math changes if interest rates are higher or lower when you apply for the mortgage. It also changes based on your local property taxes and homeowners insurance, which are rolled into your total monthly housing cost. A mortgage calculator that includes your actual location, interest rate, and property details will show you the real number for your situation.
What private mortgage insurance costs and when it stops
PMI is an insurance policy that the lender requires you to buy if your down payment is less than 20 percent. It protects the lender, not you. The cost is typically 0.5 to 1.5 percent of the loan amount per year, paid as part of your monthly mortgage payment. On a $270,000 loan, that's $1,350 to $4,050 per year, or $112 to $337 per month.
PMI is not permanent. Once you reach 20 percent equity in the home — either by paying down the loan or by the home's value rising — you can request that PMI be removed. Some loans remove it automatically once you hit that threshold. Others require you to ask your lender in writing. The timeline depends on how fast you pay down the principal and whether your home's value increases.
If you put down 10 percent and make regular payments, you'll typically reach 20 percent equity in 5 to 10 years, at which point PMI stops. If the home's value rises significantly, you may reach it faster. If you refinance the loan later at a lower interest rate, you can sometimes remove PMI at that time if you've built enough equity.
Down payment programs and where the money comes from
You don't have to save the entire down payment yourself. First-time homebuyer programs, employer assistance, and family gifts can all count toward your down payment. Some programs cover part of the down payment or closing costs. Others offer favorable interest rates if you meet income or location requirements.
Family gifts are common and are usually allowed by lenders, but the gift must be documented. The lender will ask for a letter from the family member stating that the money is a gift, not a loan you have to repay. If the money is a loan, it counts as debt and affects how much house you can afford.
Employer down payment assistance programs exist at some large companies and nonprofits. Credit unions sometimes offer down payment grants or lower rates to members. State and local housing programs vary widely — some offer forgivable loans (money you don't have to repay if you stay in the home for a set period), others offer grants, and some offer reduced interest rates. Your mortgage lender or a local housing counselor can tell you what's available in your area.
Saving versus buying sooner: the trade-off
Waiting to save 20 percent down means you avoid PMI and have a smaller monthly payment. But it also means you're renting and building no equity while you save. If you buy now with 10 percent down and pay PMI, you start building equity immediately, and you may come out ahead even after paying PMI for several years — especially if home values in your area are rising.
The break-even point depends on how long you plan to stay in the home, what interest rates are, and whether home prices are stable or rising. If you're likely to move within five years, a larger down payment makes more sense because you won't stay long enough to recoup the cost of PMI. If you plan to stay 10 years or longer, a smaller down payment often makes sense because you'll build equity faster and PMI will eventually disappear.
There's also a psychological factor: some people sleep better knowing they have a smaller monthly payment and no PMI, even if it means waiting longer to buy. Others prefer to buy sooner and accept PMI as the cost of homeownership now rather than later. Both approaches are reasonable if the numbers work for your situation.
Minimum down payments by loan type
| Loan Type | Minimum Down Payment | PMI Required? | Who It's For |
|---|---|---|---|
| Conventional | 3 to 5 percent | Yes, below 20 percent | Borrowers with good credit and stable income |
| FHA (Federal Housing Administration) | 3.5 percent | Yes, always | First-time buyers and those with lower credit scores |
| VA (Veterans Affairs) | 0 percent | No | Active military, veterans, and surviving spouses |
| USDA (Rural Development) | 0 percent | No | Borrowers buying in rural areas with moderate income |
Conventional loans are the most common and typically require 3 to 5 percent down from a lender like a bank or mortgage company. FHA loans are backed by the federal government and allow 3.5 percent down, but PMI is mandatory for the life of the loan (or at least 11 years), making them more expensive over time even though the initial down payment is small.
VA and USDA loans allow zero down payment if you meet the requirements, but they're only for specific groups. VA loans are for active military, veterans, and surviving spouses. USDA loans are for borrowers buying in rural areas who meet income limits. Both programs eliminate the need for PMI entirely, which makes them significantly cheaper than conventional or FHA loans if you're may be able to access.
What lenders look at besides your down payment
Your down payment size is only one part of the mortgage decision. Lenders also look at your credit score, income, existing debt, and employment history. A larger down payment can sometimes offset a lower credit score or higher debt-to-income ratio, but it won't may provide approval if other factors are weak.
Your debt-to-income ratio is the percentage of your gross monthly income that goes to debt payments — including the new mortgage payment. Most lenders want this to be 43 percent or lower. If you earn $5,000 per month and already have $1,500 in car loans and credit card payments, you can only afford a mortgage payment of about $1,650 per month. A larger down payment reduces the mortgage payment, which can bring your ratio down and make you approvable.
Interest rates also depend on your credit score and the size of your down payment. A 20 percent down payment typically gets you a better rate than a 5 percent down payment, all else equal. The difference might be 0.25 to 0.5 percent, which adds up to thousands of dollars over the life of the loan. This is another reason larger down payments save money beyond just avoiding PMI.
Frequently Asked Questions
Can I use a credit card or loan to pay for my down payment?
No. Lenders require that your down payment come from your own savings, gifts, or specific assistance programs. If you borrow the money, it counts as debt and affects your debt-to-income ratio, which may disqualify you or lower the amount you can borrow. The lender will ask where the money came from and may require bank statements to verify it's been in your account for at least 60 days.
What happens if I put down less than 3 percent?
Conventional loans typically don't allow down payments below 3 percent. FHA loans allow 3.5 percent. If you have less than 3 percent saved, you'll need to wait and save more, look into first-time buyer programs in your area, or explore VA or USDA loans if you're may be able to access. Some nonprofits and state programs offer down payment grants that can bridge the gap.
Can I remove PMI before I reach 20 percent equity?
Not usually. Most lenders require you to reach 20 percent equity before PMI can be removed. However, if your home's value rises significantly and you get a professional appraisal showing higher value, you may be able to remove PMI sooner. Refinancing to a new loan can also remove PMI if you've built enough equity or if rates have dropped enough to make refinancing worthwhile.
Is a 20 percent down payment always the best choice?
Not necessarily. If you can earn more by investing your savings than you'll pay in PMI and interest, a smaller down payment may make financial sense. If you're young and plan to stay in the home long-term, buying sooner with a smaller down payment often builds more wealth than waiting to save 20 percent. The best choice depends on your timeline, local market, and personal comfort with monthly payments.
Do I need to have the down payment in cash, or can it be in investments?
Lenders typically want to see the down payment in a bank account or as a certified check. If your down payment is in stocks, bonds, or other investments, you'll need to sell them and deposit the cash into your bank account before closing. The lender will verify the funds are available and have been in your account for the required time period, usually 60 days.