The basic formula: percentage of the purchase price
Your down payment is the cash you put toward a purchase upfront; the rest comes from a loan. To calculate it, multiply the purchase price by the percentage you plan to put down, then subtract that from the total price to find your loan amount.
If a house costs $300,000 and you put down 20 percent, the math is: $300,000 × 0.20 = $60,000 down payment. Your loan would 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 (a monthly fee added to your loan if your down payment is under 20 percent on a home purchase).
Key Takeaways
- Down payment = purchase price × your chosen percentage (typically 3 to 20 percent for homes, higher for investment properties).
- Putting down less than 20 percent on a mortgage triggers mortgage insurance, which increases your monthly payment and varies by loan type and credit score.
- Your down payment affects not just the loan amount but also the interest rate you receive, because lenders see larger down payments as lower risk.
- Closing costs, inspections, and appraisals are separate from your down payment and must be budgeted in addition to the amount you put down.
How down payment percentage affects your loan and monthly payment
The percentage you choose ripples through your entire loan. A larger down payment shrinks the loan amount, which lowers your monthly payment. It also often lowers your interest rate, because lenders view a bigger down payment as proof you are serious and less likely to default.
Using the $300,000 house example: at 20 percent down ($60,000), you borrow $240,000. At 10 percent down ($30,000), you borrow $270,000—an extra $30,000 in debt. Over a 30-year mortgage at the same interest rate, that difference adds tens of thousands in total interest paid. But if the 20 percent down payment qualifies you for a 0.5 percent lower interest rate, the savings compound even further.
Lenders typically accept down payments ranging from 3 to 5 percent for first-time home buyers, 10 to 15 percent for second homes or investment properties, and 20 to 25 percent or higher for investment real estate. The minimum varies by lender and loan type (conventional, FHA, VA, USDA loans each have different rules).
Mortgage insurance and what it costs you
Private mortgage insurance (PMI) is required on conventional loans when your down payment is below 20 percent. The cost is a percentage of your loan amount, paid monthly as part of your mortgage payment. It does not build equity—it protects the lender, not you.
PMI rates vary widely depending on your credit score, the size of your down payment, and the lender. A borrower with a 650 credit score putting down 5 percent might pay 1.5 to 2 percent of the loan amount annually in PMI. A borrower with a 740 score putting down 15 percent might pay 0.5 percent. On a $270,000 loan, that difference is hundreds of dollars per year.
You can remove PMI once you reach 20 percent equity in the home through a combination of down payment and principal paid down. Some lenders allow you to request removal at that point; others remove it automatically. FHA loans use mortgage insurance premiums (MIP) instead, which work differently and may not be removable even after you reach 20 percent equity.
Closing costs are separate from your down payment
Your down payment is not the only cash you need at closing. Closing costs—which include appraisal fees, title insurance, attorney fees, property taxes, homeowners insurance, and lender fees—typically run 2 to 5 percent of the purchase price on top of your down payment.
On a $300,000 purchase, closing costs might be $6,000 to $15,000. If you planned to put down $60,000 (20 percent), you actually need $66,000 to $75,000 in cash. Some lenders allow you to roll closing costs into the loan or negotiate with the seller to cover them, but that increases your loan amount and monthly payment.
Before you settle on a down payment percentage, get a Loan Estimate from your lender. This document shows your estimated closing costs, monthly payment, and total interest paid over the life of the loan—all based on your down payment amount. Use it to compare offers from different lenders and to decide whether a larger down payment makes sense for your situation.
Down payment for cars, personal loans, and other purchases
The same formula applies to car loans and other secured purchases: down payment = purchase price × percentage. For cars, down payments typically range from 0 to 20 percent, though putting down at least 10 to 15 percent helps you avoid being underwater on the loan (owing more than the car is worth).
Personal loans and credit cards do not use down payments—you borrow the full amount and repay it over time. Secured personal loans (backed by collateral like a car or savings account) may allow you to borrow less if you put up collateral, but that is not the same as a down payment.
For any purchase, the principle is the same: a larger down payment means a smaller loan, lower monthly payments, and often a better interest rate. The trade-off is having less cash on hand after the purchase. Calculate what you can afford to put down without draining your emergency savings, then use a loan calculator to see how that choice affects your monthly payment and total cost.
Using a down payment calculator
Most lenders and financial websites offer free calculators where you enter the purchase price, your down payment amount (or percentage), the interest rate, and the loan term. The calculator then shows your loan amount, monthly payment, and total interest paid.
These tools let you test different scenarios quickly. You can see what happens if you put down 10 percent instead of 15 percent, or if you extend the loan from 30 years to 40 years. You can also factor in mortgage insurance to see its true cost over time.
When using a calculator, remember that it shows an estimate based on the numbers you enter. Your actual monthly payment will include property taxes, homeowners insurance, and HOA fees (if applicable), which vary by location and property. Ask your lender for a complete payment breakdown before you commit.
Frequently Asked Questions
What is the minimum down payment I can make?
Minimum down payments vary by loan type and lender. Conventional loans often require 3 to 5 percent; FHA loans allow 3.5 percent; VA and USDA loans may allow 0 percent for borrowers who meet their criteria. Investment properties and cash-out refinances typically require 10 to 25 percent. Check with your lender for their specific minimums.
Does a larger down payment always mean a lower interest rate?
Usually, yes—lenders reward larger down payments with better rates because they see less risk. But your credit score, income, and debt-to-income ratio also affect your rate. A borrower with excellent credit and a 10 percent down payment might get a better rate than someone with fair credit and 20 percent down. Get quotes from multiple lenders to compare.
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 debt-to-income ratio and signals financial strain. Some programs allow a gift from a family member (with documentation), but not a loan. Ask your lender what sources of down payment funds they accept.
What happens if I put down less than 20 percent?
You will pay mortgage insurance (PMI or MIP) on top of your regular monthly payment. This protects the lender if you default. You can remove PMI once you reach 20 percent equity, but FHA mortgage insurance may stay for the life of the loan depending on your down payment size and loan term.
Should I put down as much as possible?
Not always. A larger down payment lowers your monthly payment and interest costs, but it also ties up cash you might need for emergencies, home repairs, or other goals. Keep at least three to six months of expenses in savings after your down payment. If you have high-interest debt, paying that down first may save you more money than maximizing your down payment.