The basic formula: percentage of the purchase price

Your down payment is the cash you put toward the home at closing, expressed as a percentage of the purchase price. The formula is simple: down payment amount = purchase price × down payment percentage.

If you are buying a house for $300,000 and putting down 20%, your down payment is $60,000. If you put down 10%, it is $30,000. The percentage you choose determines how much you borrow from the lender and how much you owe in total interest over the life of the loan.

Most lenders require a minimum down payment, which varies by loan type. Conventional loans often require 3% to 20%. FHA loans (backed by the Federal Housing Administration) allow as little as 3.5%. VA loans (for military members and veterans) may require 0% down. USDA loans (for rural properties) also may require 0% down. The lower your down payment percentage, the higher your monthly mortgage payment and the more interest you pay overall.

Key Takeaways

  • Down payment amount equals the purchase price multiplied by your chosen percentage—a $300,000 home with 20% down means $60,000 cash at closing.
  • Conventional loans typically require 3% to 20% down, while FHA loans allow 3.5%, and VA or USDA loans may allow 0% down.
  • A smaller down payment lowers your upfront cost but increases your monthly payment and total interest paid over the loan term.
  • Mortgage insurance (PMI on conventional loans, MIP on FHA loans) is required when you put down less than 20%, adding to your monthly cost.
  • Your down payment amount affects your debt-to-income ratio, which lenders use to decide whether to approve your loan.

How down payment percentage affects your monthly payment

The percentage you put down directly changes your loan amount, which changes your monthly mortgage payment. A larger down payment means you borrow less, so your monthly principal and interest payment is lower. A smaller down payment means you borrow more, so your monthly payment is higher.

On a $300,000 home with a 30-year mortgage at 7% interest: a 20% down payment ($60,000) leaves you borrowing $240,000, which results in a monthly payment of roughly $1,596 (principal and interest only). A 10% down payment ($30,000) leaves you borrowing $270,000, which results in a monthly payment of roughly $1,797. A 5% down payment ($15,000) leaves you borrowing $285,000, which results in a monthly payment of roughly $1,897. These figures do not include property taxes, insurance, or homeowners association fees, which are added on top.

The difference compounds over time. Over 30 years, the 20% down scenario costs roughly $574,560 in total payments, while the 5% down scenario costs roughly $683,000. The extra $15,000 you kept upfront by putting down 5% instead of 20% costs you roughly $109,000 more in interest and principal over the life of the loan.

Mortgage insurance and its cost when down payment is below 20%

If you put down less than 20% on a conventional loan, your lender requires private mortgage insurance (PMI). This is an insurance policy that protects the lender if you stop paying. You pay the premium as part of your monthly mortgage payment, and it does not protect you—it protects the lender.

PMI typically costs between 0.5% and 1.5% of your loan amount per year, depending on your credit score, the size of your down payment, and the lender. On a $270,000 loan (10% down on a $300,000 home), PMI might cost $1,350 to $4,050 per year, or $112 to $337 per month. This is added to your principal and interest payment.

FHA loans require mortgage insurance premium (MIP) instead of PMI. An upfront MIP of 1.75% of the loan amount is added to your loan at closing, and an annual MIP of 0.55% to 0.85% is added to your monthly payment. On a $270,000 FHA loan, the upfront MIP is $4,725, and the annual MIP adds roughly $148 to $229 per month.

You can remove PMI from a conventional loan once you have paid down the principal to 80% of the original purchase price (or 20% equity). You cannot remove MIP from an FHA loan; it stays for the life of the loan unless you refinance into a conventional loan later.

How to calculate what down payment you can afford

Start with the cash you have available right now. Subtract closing costs (typically 2% to 5% of the purchase price), which include appraisal, title search, inspection, and lender fees. Subtract a reserve fund of 3 to 6 months of mortgage payments, property taxes, insurance, and utilities. What remains is what you can reasonably put down without leaving yourself short on cash after closing.

Next, check your debt-to-income ratio (DTI). Add up all your monthly debt payments—car loans, student loans, credit cards, personal loans—and divide by your gross monthly income. Most lenders want your DTI to be 43% or lower. Your new mortgage payment (including taxes, insurance, and PMI) will be added to this calculation. A larger down payment lowers your mortgage payment, which lowers your DTI and makes approval more likely.

Use a mortgage calculator to run scenarios. Enter the purchase price, your down payment percentage, the interest rate, and the loan term (usually 30 years). The calculator shows your monthly payment, total interest paid, and whether PMI applies. Try 5%, 10%, 15%, and 20% down to see how each affects your monthly cost and total interest.

Remember that a down payment is not the only cost. Budget for property taxes (which vary by location and property value), homeowners insurance (typically $800 to $2,000 per year), HOA fees if applicable, and maintenance and repairs (often estimated at 1% of the home's value per year).

Down payment assistance programs and where to find them

If you cannot save a full down payment on your own, down payment assistance programs exist in many states and cities. These programs may offer grants (money you do not repay), forgivable loans (loans that become grants if you stay in the home for a set period), or second mortgages at favorable terms.

State housing finance agencies administer many of these programs. You can find your state's agency through the National Council of State Housing Agencies website. Local nonprofits, community development organizations, and some employers also offer down payment help. The Fannie Mae HomeReady and Freddie Mac Home Possible programs allow down payments as low as 3% and may include down payment assistance.

may be able to access varies by program and location. Some programs limit the purchase price of the home, require you to live in a certain area, cap your income, or require a first-time homebuyer status. Contact your local housing authority or a HUD-approved housing counselor to learn what programs operate in your area.

Timing: when to save versus when to buy

The larger your down payment, the longer you may need to save. A 20% down payment on a $300,000 home requires $60,000 in cash. At $500 per month in savings, that takes 10 years. At $1,000 per month, it takes 5 years. At $2,000 per month, it takes 2.5 years.

While you are saving, home prices and interest rates may change. A lower interest rate can save you more money over the life of the loan than a larger down payment. If interest rates drop significantly, buying sooner with a smaller down payment and refinancing later may cost less overall than waiting to save 20% down.

Conversely, if you are in a high-cost market where prices are rising faster than you can save, waiting may price you out entirely. The trade-off between saving longer for a bigger down payment and buying sooner with a smaller one depends on your local market, your income growth, and your life plans.

Frequently Asked Questions

What is the minimum down payment I need?

It depends on the loan type. Conventional loans typically require 3% to 5% minimum. FHA loans allow 3.5%. VA and USDA loans may allow 0% down. Some lenders have higher minimums. Check with your lender about their specific requirements.

Does a larger down payment always mean a better deal?

Not always. If interest rates are low and you can earn more by investing your cash elsewhere, a smaller down payment may make financial sense. However, a larger down payment eliminates PMI, lowers your monthly payment, and reduces the total interest you pay over time. The right choice depends on your financial situation and goals.

Can I borrow money for my down payment?

Most lenders do not allow you to borrow the down payment from another lender or credit card. However, some allow a gift from a family member. The gift must typically be documented in writing, and you may need to show proof that it is a gift, not a loan you must repay. Ask your lender about their gift policy.

What happens if I put down less than 5%?

You can put down as little as 3% on a conventional loan or 3.5% on an FHA loan, but your monthly payment and PMI or MIP costs will be higher. Your debt-to-income ratio may also be a concern, and some lenders have stricter credit score requirements for very low down payments.

Can I remove PMI after I buy the home?

Yes, on a conventional loan. Once you have paid the principal down to 80% of the original purchase price (meaning you have 20% equity), you can request PMI removal. Some lenders remove it automatically; others require you to ask. FHA loans do not allow PMI removal unless you refinance into a conventional loan.