The Basic Formula for Down Payment

Your down payment is the cash you put toward the purchase price on the day you close. The amount you need depends on the loan type and what the lender requires, but the math itself is straightforward: multiply the home's purchase price by the percentage the lender wants you to put down.

For example, if you are buying a house for $300,000 and your lender requires a 20 percent down payment, you multiply $300,000 by 0.20, which equals $60,000. That $60,000 is your down payment. The remaining $240,000 is what you borrow through your mortgage.

The percentage required varies by loan type. Conventional loans often ask for 20 percent, but many lenders accept 5 to 10 percent. Federal Housing Administration (FHA) loans typically require 3.5 percent. Veterans Affairs (VA) loans and United States Department of Agriculture (USDA) loans may require zero percent down. Your specific lender will tell you the minimum percentage they accept based on your credit score, income, and the property itself.

Key Takeaways

  • Down payment equals the purchase price multiplied by the percentage your lender requires, and the remainder becomes your loan amount.
  • Conventional loans often require 20 percent, but 5 to 10 percent is common; FHA loans require 3.5 percent; VA and USDA loans may require nothing.
  • A larger down payment lowers your monthly payment and may eliminate private mortgage insurance (PMI), but you need to keep enough cash in reserve for closing costs and emergencies.
  • Closing costs typically run 2 to 5 percent of the purchase price and are separate from your down payment, so budget for both.
  • Down payment assistance programs exist through state housing agencies and nonprofits, though the amount and rules vary by location and program.

How Loan Type Affects Your Down Payment Percentage

The type of mortgage you choose determines the minimum down payment the lender will accept. Conventional loans, which are not backed by a government agency, usually require the highest down payment—often 20 percent—though some lenders will go as low as 3 to 5 percent if your credit score is strong and your debt-to-income ratio is low.

FHA loans, backed by the Federal Housing Administration, allow down payments as low as 3.5 percent of the purchase price. This makes them popular with first-time buyers who have limited savings. However, FHA loans require you to pay mortgage insurance premiums (MIP) for the life of the loan if your down payment is less than 10 percent, which increases your monthly cost.

VA loans, available to military members and veterans, often require zero percent down. USDA loans, for rural properties, also frequently require zero percent down. Both of these programs have their own rules about property location, income limits, and credit requirements, so check with your lender about whether you meet the criteria.

The Difference Between Down Payment and Closing Costs

Many people confuse down payment with closing costs, but they are separate amounts you pay at closing. Your down payment goes toward the purchase price itself. Closing costs cover everything else: loan origination fees, appraisal fees, title insurance, property taxes, homeowners insurance, and attorney fees if required in your state.

Closing costs typically range from 2 to 5 percent of the purchase price, depending on your location and lender. On a $300,000 home, that could be $6,000 to $15,000 on top of your down payment. Some lenders allow you to roll closing costs into the loan, but that increases the amount you borrow and the interest you pay over time. Others let the seller cover part of the closing costs through a credit at closing, though this varies by state and market conditions.

When you are calculating how much cash you need to bring to closing, add both the down payment and closing costs together, then add a buffer for any unexpected expenses or appraisal gaps.

How Down Payment Size Affects Your Monthly Payment and Mortgage Insurance

A larger down payment directly lowers your monthly mortgage payment because you are borrowing less money. If you put down 20 percent instead of 5 percent on that $300,000 home, you borrow $240,000 instead of $285,000—a difference of $45,000. Over a 30-year loan at typical interest rates, that difference can mean $200 to $300 less per month.

Down payment size also determines whether you pay private mortgage insurance (PMI). If you put down less than 20 percent on a conventional loan, your lender requires PMI to protect themselves if you default. PMI typically costs 0.5 to 1.5 percent of your loan amount per year, added to your monthly payment. On a $285,000 loan, that could be $120 to $360 per month. Once you have paid down your loan to 80 percent of the home's original value, you can request to have PMI removed.

The trade-off is that a larger down payment means less cash in your pocket after closing. You need to keep money in reserve for home repairs, property taxes, insurance, and living expenses. Putting everything you have into a down payment can leave you vulnerable if the furnace breaks or you lose income.

Using a Down Payment Calculator

You can calculate your down payment by hand using the formula above, but online calculators speed up the process and let you test different scenarios. Most mortgage lenders offer free calculators on their websites where you enter the purchase price, down payment percentage, and loan term, and the tool shows you the loan amount, estimated monthly payment, and total interest paid.

These calculators do not include closing costs or PMI by default, so you may need to add those estimates separately. Some calculators have fields for property taxes, insurance, and HOA fees, which gives you a more complete picture of your total monthly housing cost. Use a few different calculators to see how the numbers change if you adjust your down payment percentage or loan term.

Down Payment Assistance Programs and Where to Find Them

Many states, counties, and nonprofits offer down payment assistance to help buyers who do not have enough savings. These programs may provide grants (money you do not repay), forgivable loans (loans that disappear if you stay in the home for a set period), or second mortgages at favorable terms.

State housing finance agencies administer most of these programs. You can find your state's agency through the National Council of State Housing Agencies website. Some programs are limited to first-time buyers, some to low-income households, and some to specific professions like teachers or healthcare workers. The amount available and the rules vary widely by location and program.

Nonprofits like NeighborWorks America and local community development organizations also run down payment assistance programs. Your mortgage lender may know which programs you could use, or you can contact your city or county housing department to ask what is available in your area. Many programs have waiting lists or limited funding, so start looking early.

Common Mistakes When Calculating Down Payment

The most common mistake is forgetting to budget for closing costs separately. Buyers calculate their down payment, set aside that amount, and then are surprised to learn they need several thousand more dollars at closing. Always add 2 to 5 percent of the purchase price to your down payment figure to account for closing costs.

Another mistake is putting down the maximum amount you can afford. If you deplete your savings to reach 20 percent down and eliminate PMI, you may not have money left for repairs, property taxes, or insurance payments. A 10 percent down payment with PMI can be smarter than a 20 percent down payment that leaves you with no emergency fund.

A third mistake is not shopping around for lenders. Different lenders have different minimum down payment requirements and different closing cost structures. A lender that requires 10 percent down may charge higher fees than one that requires 15 percent. Compare offers from at least three lenders before deciding.

Frequently Asked Questions

Can I use a gift from family for my down payment?

Yes, most lenders allow down payment gifts from family members. You will need a signed gift letter stating the money is a gift and not a loan you have to repay. The lender may ask for bank statements showing the gift was deposited into your account. Some programs limit how much of your down payment can come from a gift, so check with your lender first.

What happens if the home appraises for less than the purchase price?

If the appraisal comes in lower than the price you agreed to pay, your down payment percentage increases automatically. If you agreed to buy a $300,000 home with a 10 percent down payment ($30,000) but it appraises for $280,000, you still owe $30,000 down, which is now 10.7 percent of the appraised value. You can renegotiate the price, walk away, or cover the gap with more cash.

Can I borrow money for my down payment?

Most lenders do not allow you to borrow your down payment from another lender or credit card. They want to see that the down payment comes from your own savings or a gift. Borrowing signals higher financial risk. Some lenders allow a second mortgage or home equity line of credit if you already own property, but this is less common and comes with higher costs.

Is a 0 percent down payment really possible?

Yes, through VA loans and USDA loans. VA loans are for military members, veterans, and surviving spouses. USDA loans are for rural properties and have income limits. Both programs have their own credit and property requirements. If you do not meet the criteria for these programs, a conventional loan with 3 to 5 percent down is usually the lowest option available.

How do I know if I should put down more than the minimum?

Put down more than the minimum if you have savings beyond your down payment and closing costs, and you want to lower your monthly payment or avoid PMI. Put down the minimum if you want to keep cash in reserve for emergencies, home repairs, or other financial goals. There is no single right answer—it depends on your income stability and comfort with risk.