Down payments range from 3% to 20% of the home's purchase price, depending on the loan type and your financial situation
The percentage you put down is not fixed. A conventional loan typically requires 20% down, but many lenders accept 5% to 10%. FHA loans allow as little as 3.5% down. VA loans and USDA loans can require 0% down if you meet their may be able to access criteria. The lower your down payment percentage, the larger your monthly mortgage payment and the more interest you pay over the life of the loan.
The down payment amount is calculated on the purchase price alone. If you are buying a home for $300,000 and put down 10%, that is $30,000. The remaining $270,000 becomes your loan amount, which you repay with interest over 15, 20, or 30 years.
Putting down less than 20% triggers private mortgage insurance (PMI), an extra monthly cost that protects the lender if you default. PMI typically costs 0.5% to 1.5% of your loan amount per year, added to your monthly payment. You can remove PMI once you have paid down the loan to 80% of the home's original value, though this takes years on most mortgages.
Key Takeaways
- Conventional loans usually require 10% to 20% down, while FHA loans allow 3.5% and some government loans allow 0%.
- Your down payment percentage is calculated on the purchase price, and the rest becomes your loan amount.
- Down payments below 20% require PMI, an insurance fee added to your monthly payment that can cost hundreds of dollars per month.
- A smaller down payment means a larger loan, higher monthly payments, and more total interest paid over the life of the mortgage.
- You can remove PMI once your loan balance drops to 80% of the home's original purchase price.
How down payment percentage affects your monthly payment
The lower your down payment, the more you borrow, and the higher your monthly principal and interest payment becomes. On a $300,000 home at a 7% interest rate over 30 years, the difference is substantial. A 20% down payment ($60,000) means borrowing $240,000, with a monthly payment around $1,596. A 5% down payment ($15,000) means borrowing $285,000, with a monthly payment around $1,897—roughly $300 more per month before PMI is added.
PMI adds another layer. On that $285,000 loan, PMI might cost $150 to $300 per month depending on your credit score and the lender. Your total monthly housing payment jumps significantly. Over 30 years, the difference between a 20% down payment and a 5% down payment can exceed $100,000 in total interest and insurance costs.
When a smaller down payment makes sense
Putting down less than 20% is not always wrong. If you have limited savings and home prices in your area are rising faster than you can save, a 3% or 5% down payment gets you into a home sooner. You build equity immediately instead of waiting years to accumulate a larger down payment.
If you have cash sitting in a low-yield savings account earning less than 1%, and mortgage rates are around 6% to 7%, you might choose to put down only 5% and invest the remaining cash elsewhere. This strategy only works if your investments actually outpace the mortgage interest rate and PMI costs—which is not may provide.
First-time homebuyer programs sometimes offer down payment assistance or favorable terms at lower percentages. Some employers offer down payment help as part of their benefits. If you have access to these programs, a smaller down payment becomes more practical.
Loan type determines your down payment options
Conventional loans are issued by banks and mortgage companies without government backing. They typically require 5% to 20% down, though some lenders go as low as 3%. Your credit score, debt-to-income ratio, and savings history affect whether you may have access to at the lower end.
FHA loans are backed by the Federal Housing Administration and allow down payments as low as 3.5%. They are designed for borrowers with lower credit scores or limited savings. FHA loans require mortgage insurance for the life of the loan if your down payment is below 10%, which is a permanent cost unlike conventional PMI.
VA loans are available to military members, veterans, and some surviving spouses. They often require 0% down. USDA loans are for rural homebuyers and also allow 0% down in most cases. Both have specific location and income requirements.
Saving for a larger down payment versus buying sooner
Saving for 20% down takes time. On a $350,000 home, that is $70,000. If you save $1,000 per month, it takes nearly six years. During that time, home prices may rise, property taxes may increase, and you are paying rent instead of building equity through a mortgage.
Buying now with 5% or 10% down means you start building equity immediately and lock in today's purchase price. You pay PMI for several years, but you own the home. If prices rise 3% per year, waiting six years to save 20% down means the home now costs $420,000 instead of $350,000—and your 20% down payment is now $84,000, not $70,000.
The math depends on your local market, interest rates, and how quickly you can save. There is no universal right answer, but the longer you wait, the higher the purchase price typically becomes.
How to calculate your down payment in dollars
Multiply the home's purchase price by your down payment percentage. A $250,000 home with a 10% down payment is $250,000 × 0.10 = $25,000. A $400,000 home with a 3.5% down payment is $400,000 × 0.035 = $14,000.
Remember that your down payment is separate from closing costs. Closing costs typically run 2% to 5% of the purchase price and cover appraisals, title insurance, inspections, and lender fees. A $300,000 home might require $6,000 to $15,000 in closing costs on top of your down payment. Some lenders allow you to roll closing costs into the loan, but this increases your total borrowing and monthly payment.
Down payment assistance and gift funds
If you lack savings for a down payment, some programs help. Nonprofit organizations, state housing agencies, and some employers offer down payment assistance grants or forgivable loans. These do not have to be repaid if you meet certain conditions, such as staying in the home for a set number of years.
Family members can gift you money for a down payment. Lenders allow this, but they require documentation proving it is a gift and not a loan you must repay. The gift giver signs a letter stating the money is a gift with no repayment expected. This protects the lender from discovering hidden debt that affects your ability to repay the mortgage.
Frequently Asked Questions
Can I put down less than 3% on a conventional loan?
Some lenders offer 2% or 3% down conventional loans, but they are less common and usually require a higher credit score (680 or above) and a lower debt-to-income ratio. Most conventional loans start at 5% down. FHA loans at 3.5% down are often easier to may have access to for if you have lower credit.
What happens if I put down 0% on a VA or USDA loan?
You borrow the entire purchase price, so your monthly payment is higher and you pay more interest over time. You do not pay PMI on VA loans, but USDA loans require an upfront may provide fee and an annual fee. Both are still cheaper than PMI on conventional loans.
Can I remove PMI before reaching 80% loan-to-value?
On conventional loans, you can request PMI removal once you reach 80% LTV, but the lender can also remove it automatically at 78% LTV. On FHA loans with less than 10% down, PMI is permanent for the life of the loan and cannot be removed. Refinancing is the only way to escape it.
Does the down payment percentage affect my interest rate?
Yes. Borrowers who put down 20% or more typically receive lower interest rates because they pose less risk to the lender. A 5% down payment may result in a rate 0.25% to 0.5% higher than a 20% down payment, which adds thousands to your total interest cost.
What if I inherit money after I buy—can I use it to pay down my mortgage faster?
Yes. You can make extra payments toward principal at any time without penalty on most mortgages. Paying extra principal reduces the total interest you pay and can shorten your loan term. Check your loan documents to confirm there is no prepayment penalty, though these are rare on mortgages.