The basic formula: percentage of the purchase price

Your down payment is a percentage of the home's purchase price that you pay upfront, with the rest financed through a mortgage. The calculation is straightforward: multiply the purchase price by your target down payment percentage, then subtract that from the total price to find your loan amount.

For example, if a house costs $300,000 and you put down 20%, your down payment is $60,000 ($300,000 × 0.20 = $60,000). Your mortgage would then be $240,000. The percentage you choose affects your monthly payment, the interest you pay over time, and whether you'll owe private mortgage insurance (PMI)—an extra monthly cost lenders charge when your down payment is less than 20%.

The percentage itself is your choice within the limits your lender allows. Most lenders accept down payments ranging from 3% to 20%, though some programs go lower and some borrowers put down more. Your income, credit score, and the type of loan you're seeking all influence what percentage your lender will accept.

Key Takeaways

  • Down payment = purchase price × your chosen percentage (3% to 20% is typical).
  • Putting down less than 20% means you'll pay PMI on top of your mortgage payment until you reach 20% equity.
  • Your lender sets minimum and maximum down payment percentages based on loan type and your financial profile.
  • The down payment amount affects your total loan size, monthly payment, and long-term interest costs.
  • Closing costs (typically 2% to 5% of the purchase price) are separate from your down payment and must be paid at signing.

How down payment percentage affects your mortgage payment

A larger down payment lowers the amount you borrow, which directly reduces your monthly mortgage payment. Using the $300,000 house example: a 20% down payment ($60,000) means a $240,000 loan, while a 5% down payment ($15,000) means a $285,000 loan. Over a 30-year mortgage at the same interest rate, that $45,000 difference in borrowed amount translates to roughly $240 more per month in principal and interest alone.

The relationship works the other way too: a smaller down payment lets you buy sooner with less cash on hand, but costs more monthly and more in total interest paid. A 3% down payment on that same house means borrowing $291,000—nearly the full purchase price—which increases both your monthly payment and the total interest you'll pay over the life of the loan.

Your lender will show you the exact monthly payment for each down payment scenario before you commit. This is part of the loan estimate they're required to provide within three business days of your application.

When PMI gets added to your calculation

Private mortgage insurance is a monthly cost added to your payment when your down payment is below 20%. PMI protects the lender if you stop paying; it does not protect you. The cost varies by lender, loan type, and your credit score, but typically runs 0.5% to 1.5% of your loan amount annually, divided into monthly payments.

On a $285,000 loan (5% down on the $300,000 house), PMI might add $120 to $360 per month depending on your credit and the lender. This cost stays on your payment until you've paid down the loan to 80% of the home's original purchase price—meaning you've built 20% equity. For a $300,000 house, that happens when your loan balance drops to $240,000.

Some loan programs, like FHA loans, charge mortgage insurance differently: an upfront premium added to your loan amount at closing, plus a monthly insurance payment. VA and USDA loans may not require PMI at all, even with no down payment. Your lender will disclose all insurance costs in the loan estimate.

Separating down payment from closing costs

Down payment and closing costs are two different amounts, and both must be ready before you close on the house. Closing costs typically range from 2% to 5% of the purchase price and cover appraisal fees, title insurance, attorney fees, inspections, and lender fees. On a $300,000 house, closing costs might run $6,000 to $15,000.

If you're putting 20% down ($60,000) on that house, you also need to bring $6,000 to $15,000 in closing costs—a total of $66,000 to $75,000 in cash at closing. Some lenders allow you to roll closing costs into your loan, which increases your total borrowed amount but reduces the cash you need upfront. Your loan estimate will break down each closing cost separately so you know exactly what to expect.

Down payment assistance programs sometimes cover down payments, closing costs, or both. These vary by location and loan type, so ask your lender whether you might be may be able to access for any local or state programs.

How to work backward from your budget

If you know how much you can afford to pay monthly, you can reverse-engineer the down payment you need. Start with your maximum monthly payment (including taxes, insurance, and PMI if applicable), then work with a lender to find the loan amount that fits. Once you know the loan amount, subtract it from the purchase price to find your required down payment.

For example: you can afford $1,500 per month in mortgage payment. A lender tells you that at current interest rates, a $240,000 loan costs roughly $1,150 per month in principal and interest, leaving room for taxes and insurance. If you're buying a $300,000 house, that $240,000 loan means you need a 20% down payment ($60,000). If the same house were $250,000, a $200,000 loan would fit your budget, requiring only a 20% down payment of $50,000.

This backward approach helps you set a realistic purchase price before you start house hunting. Many lenders offer online calculators where you can input your target monthly payment and see what down payment percentage you'd need for different purchase prices.

Down payment requirements by loan type

Conventional loans (not backed by the government) typically require a minimum down payment of 3% to 5%, though some lenders accept lower percentages. PMI is required below 20%. FHA loans allow down payments as low as 3.5% and are designed for first-time buyers or those with lower credit scores; they charge mortgage insurance regardless of down payment size. VA loans (for military members and veterans) often require no down payment at all. USDA loans (for rural properties) also typically require no down payment for may be able to access borrowers.

Each loan type has different rules about what down payment percentage triggers PMI, how insurance is calculated, and whether you can remove it later. Your lender will explain the specific requirements for the loan type you're pursuing. The loan estimate they provide will show the exact down payment amount, PMI cost (if any), and all other fees for your situation.

Frequently Asked Questions

Can I use a gift for my down payment?

Yes, most lenders allow down payment gifts from family members. You'll need a signed gift letter stating the money is a gift, not a loan you must repay. The lender may verify the gift funds are actually in your account before closing. Some loan programs limit how much of your down payment can be a gift; ask your lender about their specific rules.

What happens if I put down more than 20%?

Putting down more than 20% eliminates PMI and reduces your loan amount further, lowering your monthly payment and total interest paid. There's no penalty for a larger down payment. However, you'll have less cash available for emergencies or other needs after closing, so balance the benefit against your overall financial situation.

Can I borrow money for my down payment?

Most lenders do not allow you to borrow your down payment from another source, because it increases your total debt and risk. Some programs have exceptions for specific types of loans (like home equity lines of credit from a previous property), but you must disclose any borrowed funds to your lender upfront. Using a gift is the standard alternative if you don't have cash saved.

Does my down payment percentage affect my interest rate?

Yes, typically. Borrowers who put down 20% or more often receive lower interest rates than those putting down 5% or 10%, because the lender's risk is lower. The difference might be 0.25% to 0.5% in interest rate, which adds up significantly over 30 years. Your lender will show you the rate for your specific down payment amount.

What if I can only afford 3% down?

A 3% down payment is allowed on many conventional loans and is common for first-time buyers. You'll pay PMI, which increases your monthly cost, but it lets you buy sooner. As your loan balance drops and you build equity, you can request PMI removal once you reach 20% equity, eliminating that extra monthly cost.