Mortgage Down Payment: How Much Do You Really Need?

A down payment shapes your mortgage from day one. It affects your monthly payment, your interest costs, whether you’ll pay PMI, and how quickly you build equity. While “20% down” is a long‑standing rule of thumb, it’s not a requirement—and putting more or less down comes with trade‑offs. This guide explains how to decide on the right number for you, with clear examples and practical tips.

What Is a Down Payment?

Your down payment is the portion of the home price you pay upfront. The rest is financed as your mortgage. For example, on a $400,000 home, a 20% down payment is $80,000; your loan amount would be $320,000 (plus closing costs).

The 20% Myth—And When It Makes Sense

• Putting 20% down typically lets you avoid PMI (private mortgage insurance), which protects the lender and adds to your monthly payment.
• Higher down payments reduce your loan amount, lower your monthly principal‑and‑interest, and often improve the rate you qualify for.
• However, 20% is not mandatory. Many borrowers buy successfully with 3%–10% down and refinance later once equity rises.

If you want to understand your exact monthly payment with different down payments, try our Mortgage Calculator. It estimates full PITI (principal, interest, taxes, insurance) and optional PMI.

Common Minimums by Loan Type

• Conventional: often as low as 3%–5% down for qualified borrowers.
• FHA: as low as 3.5% down (with mortgage insurance premiums).
• VA/USDA: 0% down for eligible borrowers in specific programs.

Rates, credit score requirements, reserves, and property type can all influence what you qualify for.

How Down Payment Changes Your Monthly Payment

Consider a $400,000 home, 6.5% interest, 30‑year fixed, 1.2% property tax rate, $1,200 annual insurance:

• 5% down (loan: $380,000) + 0.5% PMI: Higher monthly P&I and added PMI until you build sufficient equity.
• 10% down (loan: $360,000) + 0.5% PMI: Slightly lower payment, PMI still applies.
• 20% down (loan: $320,000) + 0% PMI: Lower payment and no PMI.

Run these scenarios quickly in the Mortgage Calculator by changing Down Payment and PMI inputs.

Should You Put More Down?

Reasons to increase your down payment:

• Lower monthly payment and total interest over the loan’s life.
• Avoid PMI and reduce cash‑flow pressure.
• Improve odds of approval or better rate tiers.

Reasons to keep cash on hand:

• Emergency fund and flexibility for repairs, furnishings, or moving costs.
• Opportunity cost if investments could reasonably outpace the mortgage rate after taxes.
• Upcoming expenses (e.g., childcare, car replacement, tuition).

There isn’t a universal “best” percentage—the right number balances monthly affordability, risk, and your broader financial plan.

Example: 10% vs 20% Down

On $400,000 at 6.5% over 30 years:

• 10% Down: Loan $360,000. Monthly principal & interest is higher than with 20% down; PMI applies initially. Total interest over the term is greater due to the larger balance.
• 20% Down: Loan $320,000. Lower monthly payment, no PMI, and meaningfully lower total interest.

If you’re debating between these two checkpoints, also compare the opportunity cost of the extra $40,000 tied up in home equity. Some buyers prefer to put more down for peace of mind; others prioritize liquidity.

Building Equity Faster Without a Huge Down Payment

Even if you start with 5%–10% down, you can build equity effectively by:

• Making one extra principal payment per year
• Applying windfalls (tax refunds, bonuses) toward principal
• Choosing a shorter term (e.g., 20‑year instead of 30‑year)

Our guide, How Extra Payments Cut Years Off Your Mortgage, explains simple strategies and their impact.

Frequently Asked Questions

Do I need 20% down to avoid PMI?

Generally, yes for conventional loans. But some programs allow lower down payments with different insurance structures, and PMI can drop off once your loan‑to‑value falls sufficiently.

Is a lower down payment risky?

It increases your monthly payment and can add PMI, but it may be reasonable if you keep a strong emergency fund and avoid stretching.

Should I invest extra cash instead of putting it down?

It depends on your risk tolerance, expected returns, tax considerations, and job stability. There’s no one‑size‑fits‑all answer.

Keep Exploring

• Compare Fixed vs ARM Mortgages
• Learn about Closing Costs
• Understand What Is PMI

Sources

• Consumer Financial Protection Bureau (CFPB) – Down payments and mortgage insurance
• Freddie Mac – Conventional mortgage guidelines