Your down payment — the cash paid upfront as a percentage of the home's price — determines the loan amount, whether private mortgage insurance (PMI) is required, the monthly payment, and total interest over 30 years. While 20% is often quoted as the standard, U.S. buyers routinely purchase with 3%, 3.5%, 10%, or even 0% down through programs designed for first-time buyers, veterans, and rural purchases. The right percentage depends on available cash, how long you plan to stay, and whether buying sooner outweighs a temporary PMI cost.
This guide explains how much down payment is needed for each loan type, how the percentage changes monthly payment and lifetime interest, and how to use a down payment calculator to compare scenarios — with a $400,000 example at today's rates and a decision framework for choosing the amount to put down.
What Is a Down Payment?
A down payment is the portion of the purchase price paid in cash at closing, with the remainder borrowed as a mortgage. It is expressed as a percentage: Down = Price × % and Loan = Price − Down. The loan-to-value ratio (LTV) is Loan ÷ Price — e.g., 20% down is 80% LTV. LTV drives two costs: whether PMI is required and the interest rate tier.
Per CFPB: What is a down payment?, the down payment comes from savings, gift funds, or down payment assistance (DPA) grants — not from the mortgage itself. Closing costs (2-5% of price) are separate and due in addition to the down payment at closing.
How Much Down Payment Do You Need? Compared at $400,000, 7% 30yr
Answer-first: 20% saves the most per month and over 30 years, but 3.5-10% gets ownership sooner with temporary PMI. The trade-off is cash now vs cost over time.
| Down % | Cash Needed | Loan (LTV) | PMI/MIP | Monthly P&I* | 30-yr Interest |
|---|---|---|---|---|---|
| 20% | $80,000 | $320,000 (80%) | None | $2,129 | $446k |
| 10% | $40,000 | $360,000 (90%) | ~$180/mo | $2,575 | $567k |
| 5% | $20,000 | $380,000 (95%) | ~$250/mo | $2,777 | $619k |
| 3.5% (FHA) | $14,000 | $386,000 (96.5%) | MIP ~$270/mo | $2,864 | $645k |
| 0% (VA/USDA) | $0 | $400,000 (100%) | No PMI (VA) | $2,661 | $558k |
* Principal + interest only at 7%. Add ~$400-600/mo for property taxes + homeowners insurance + HOA. PMI drops at 20% equity (80% LTV); FHA MIP often lasts the life of the loan.
Key takeaways:
- 20% down saves ~$735/mo vs 3.5% FHA and ~$199k in interest over 30 years — no PMI, lower rate tier, smaller loan.
- Less down costs more monthly but less upfront: 10% down is $40,000 less cash than 20% but $446/mo more until PMI drops.
- PMI is not equity: It insures the lender, not the borrower. Conventional PMI auto-terminates at 78% LTV per the Homeowners Protection Act and is removable at 80% LTV on request.
Loan Types and Minimum Down Payment
Conventional — 3% to 20%
The most common loan, not government-insured. 3% down is available to first-time buyers via HomeReady (Fannie Mae) and Home Possible (Freddie Mac); 5-10% is common; 20% avoids PMI. Requires 620+ credit, debt-to-income (DTI) typically under 45% (Fannie Mae eligibility), and PMI if under 20% — removable at 80% LTV.
FHA — 3.5%
Insured by the Federal Housing Administration. 3.5% down with 580+ credit (500-579 with 10% down), allows higher DTI and gift funds for the full down payment. Includes mortgage insurance premium (MIP): 1.75% upfront (often financed) + ~0.55% annual, which is typically for the life of the loan — making FHA more expensive long-term despite easier credit.
VA — 0% (Veterans, Active Duty, Eligible Spouses)
Guaranteed by the Department of Veterans Affairs. 0% down, no PMI or MIP, with a funding fee of 1.25-3.3% (often financed, waived for disabled veterans). The best terms for those eligible — 0% down without the PMI penalty.
USDA — 0% (Eligible Rural Areas)
For homes in eligible rural areas with income limits. 0% down, upfront guarantee fee 1% + 0.35% annual, 640+ credit typical. Geographic and income restrictions apply.
How to Choose Beyond the Minimum
- Min down → sooner ownership: 3.5% gets in now; extra cash can be invested elsewhere. If rent exceeds PMI plus the extra interest, buying sooner can still build equity faster than waiting.
- 20% down → lower cost: No PMI, lower rate (up to 0.5% lower from 95% to 80% LTV), and less total interest — optimal if cash is available and the stay is 7+ years.
- 10% middle path: PMI of ~$180/mo that drops at 20% equity — temporary cost for a 2× smaller cash hurdle than 20%.
Gift funds and state Down Payment Assistance (DPA) — grants or forgivable loans covering 3.5% — are permitted for conventional and FHA and can make cash to close $0 from savings. Many first-time buyer programs pair 3% conventional with DPA.
How the Down Payment Affects Monthly Payment (With Formula)
Beyond PMI, the down percentage changes the loan amount and the interest paid. The calculator uses the standard amortization formula:
Down = Price × Down% // $400,000 × 20% = $80,000
Loan = Price − Down // $400,000 − $80,000 = $320,000
Monthly P&I = P × [r(1+r)^n] / [(1+r)^n − 1]
where r = annual rate/12, n = term × 12
Example: $320,000 at 7% 30yr → $2,129/mo
Then add PMI if LTV > 80%: 90% LTV ~0.6%/yr → $180/moTry these scenarios in the calculator:
- First home $300K, 3.5% FHA: $10,500 down → $289,500 loan → $1,925 P&I + ~$135 MIP = $2,060 (plus taxes/insurance)
- Move-up $500K, 10%: $50,000 down → $450,000 loan → $2,993 P&I + ~$225 PMI = $3,218
- 15-yr vs 30-yr at 20% on $400K: 15-yr → $2,766/mo but saves ~$280k interest vs 30-yr at $2,129
How to Use the Down Payment Calculator
- Enter home price and down % (or dollar amount): Slide between 3% and 30% or type the dollar amount — the other updates live. Try the loan type minimum (3%, 3.5%, 10%, 20%, 0% for VA).
- Set rate and term: Use the current average (Freddie Mac PMMS) or a quoted rate; toggle 30 vs 15 years. The monthly P&I updates instantly.
- Add taxes, insurance, HOA, and PMI: Optional fields for a full PITI estimate. PMI is estimated from LTV and auto-removed at 80% LTV for conventional.
- Compare scenarios: Open 3% vs 10% vs 20% side by side to see cash needed, loan, PMI, monthly, and total interest — the trade-off between cash now and cost over time becomes concrete.
How much house can be afforded? Reverse the calculator: enter a target monthly P&I (28% of gross income per the 28/36 rule — e.g., $120k income → ~$2,800/mo) to see the price at 20% down (~$420k at 7%). This front-loads affordability before house hunting.
How to Decide How Much to Put Down — Decision Framework
| If... | Consider | Why |
|---|---|---|
| Cash + emergency fund available, staying 7+ years | 20% | Optimal long-term cost, no PMI |
| Rent > PMI + extra interest, want in sooner | 3.5-10% | Sooner ownership, temporary PMI, equity starts now |
| VA eligible | 0% VA | Zero down, no PMI, funding fee only |
Three rules before deciding:
- Keep an emergency fund: Don't drain savings for 20%. Retain 3-6 months of expenses plus 2-5% for closing costs. Being house-poor is riskier than PMI.
- Compare rent vs buy: At $2,000 rent, buying at 3.5% and $2,600 (with PMI) still builds equity. The calculator shows break-even vs waiting 2 years and saving for 20% while paying rent.
- Rate matters more than %: A 0.75% rate improvement (e.g., 7.75% → 7.0%) saves roughly as much monthly as an extra 10% down. Shop at least 3 lenders — 20% down doesn't fix a bad rate.
After the calculator, get a pre-approval to lock the rate and confirm DTI, then revisit the down % with real numbers. The calculator is an estimate; pre-approval is a commitment. Check local DPA — many states cover the full 3.5% for first-time buyers, making cash to close near $0 from savings.
FAQs About Down Payments
How much down payment do I need for a house?
20% ($80,000 on $400K) avoids PMI, but 3% conventional, 3.5% FHA, and 0% VA/USDA are common. The minimum depends on loan type and credit; use a calculator to compare cash needed vs monthly cost.
Is 20% down required?
No — 20% is not required and was put down by only ~30% of recent buyers per NAR. It avoids PMI and lowers total interest, but 3-10% Conventional and 3.5% FHA are standard paths to ownership sooner.
What is PMI and when does it go away?
Private mortgage insurance protects the lender when LTV exceeds 80%. Conventional PMI averages 0.5-1.0% of the loan per year (~$180/mo on $360K at 90% LTV) and is removable at 80% LTV on request, auto-terminating at 78% LTV per the Homeowners Protection Act. FHA MIP is typically for the life of the loan.
Can gift funds cover the down payment?
Yes — conventional and FHA allow 100% gift funds with a gift letter stating no repayment is required. Many DPA programs also provide grants covering 3.5% for first-time buyers.
How much are closing costs in addition to the down payment?
Typically 2-5% of the price ($8,000-20,000 on $400K) for lender fees, title, appraisal, and prepaid taxes/insurance — due at closing on top of the down payment. Seller concessions and lender credits can offset a portion.
Should I put 20% down or keep cash for investments?
It depends on opportunity cost: if expected investment return exceeds the mortgage rate plus PMI, keeping cash invested can win mathematically, but 20% down saves guaranteed interest and PMI. Compare the calculator's total interest vs expected portfolio return, and keep an emergency buffer regardless.
Conclusion
The right down payment is not the maximum — it's the amount that balances cash reserves, monthly comfort, and long-term cost. Use the calculator to compare 3.5% vs 10% vs 20% with real rates, add taxes and PMI for a full picture, and decide based on how long you plan to stay and whether buying sooner outweighs temporary PMI.
Enter the home price, slide the down % to the loan minimum, and see the loan, PMI, monthly, and total interest instantly — then adjust to the mix of cash now vs cost over time that fits the budget.
