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A down payment is the portion of a home's purchase price you pay upfront in cash. The remainder is financed through a mortgage. A larger down payment reduces your loan amount, monthly payment, and total interest paid over the life of the loan. Most lenders require a minimum down payment ranging from 3% to 20% depending on the loan type.
| Loan type | Minimum down | PMI required? |
|---|---|---|
| Conventional | 3–5% | Yes, if under 20% |
| FHA | 3.5% | Yes (MIP for life of loan) |
| VA | 0% | No (VA funding fee instead) |
| USDA | 0% | Yes (guarantee fee) |
| Jumbo | 10–20% | Varies by lender |
Putting 20% down eliminates Private Mortgage Insurance (PMI), which typically costs 0.5–1.5% of the loan amount per year. On a $300,000 loan, PMI adds $1,500–$4,500 per year, or $125–$375 per month. However, waiting to save 20% may not always be the best financial decision — in a rising market, home price appreciation can outpace savings, and renting while saving may cost more than the PMI you would have paid.
A larger down payment directly reduces your loan principal, which lowers both your monthly payment and total interest. On a $400,000 home at 6.5% for 30 years: a 5% down payment ($20,000) results in a $2,402/month payment; 10% down ($40,000) gives $2,275/month; 20% down ($80,000) gives $2,023/month — a $379/month savings compared to 5% down, plus no PMI.
The ideal down payment depends on your financial situation. Putting 20% down eliminates PMI and reduces monthly payments. However, if it would deplete your savings or delay homeownership significantly, a smaller down payment with PMI may be the better choice. Keep an emergency fund of 3–6 months of expenses even after the down payment.
If your mortgage rate is lower than expected investment returns (after tax), investing the difference may build more wealth over time. However, a larger down payment provides guaranteed savings equal to your mortgage interest rate. The right choice depends on your risk tolerance and financial goals.
Private Mortgage Insurance protects the lender if you default. On conventional loans, you can request PMI removal once you reach 20% equity, and it must be automatically removed at 22% equity. FHA loans require mortgage insurance for the life of the loan regardless of equity.
Most loan types allow gift funds for down payments, but lenders require a gift letter confirming the money does not need to be repaid. FHA allows 100% of the down payment from gifts. Conventional loans may require that you contribute some of your own funds depending on the down payment amount.
No. Closing costs are separate from the down payment and typically run 2–5% of the home price. You need to budget for both. Some closing costs can be negotiated with the seller, and some lenders offer no-closing-cost options in exchange for a higher interest rate.