What Your Down Payment Actually Means

Your down payment is the cash you bring to closing — the amount you pay out of your own pocket, with the rest of the purchase price borrowed as a mortgage. If a house costs $300,000 and you put down $60,000, your mortgage will be for $240,000. The lender covers the gap; you cover the down payment.

The down payment is expressed as a percentage of the total price. That $60,000 on a $300,000 house is 20 percent. The percentage matters because it determines how much you borrow, what your monthly payment will be, and whether you pay mortgage insurance on top of your loan.

Figuring out your down payment means working backward from three things: how much house you want to buy, how much cash you actually have available, and what percentage the lender will accept.

Key Takeaways

  • Your down payment is the cash you pay at closing; the rest of the purchase price becomes your mortgage loan.
  • Down payments are expressed as a percentage of the home price, and common minimums are 3 percent, 5 percent, 10 percent, or 20 percent depending on the loan type.
  • To calculate the dollar amount, multiply the home price by the percentage you plan to put down (for example, $300,000 × 0.05 = $15,000 for a 5 percent down payment).
  • Putting down less than 20 percent usually means paying mortgage insurance, which adds to your monthly cost but lets you buy sooner with less cash saved.
  • Your actual down payment should account for closing costs, which typically run 2 to 5 percent of the purchase price and come due at the same time.

The Basic Calculation: Price Times Percentage

The math is straightforward. Take the purchase price of the house and multiply it by the percentage you plan to put down.

If the house is $250,000 and you want to put down 10 percent: $250,000 × 0.10 = $25,000. If it is $400,000 and you want to put down 5 percent: $400,000 × 0.05 = $20,000. If it is $350,000 and you want to put down 20 percent: $350,000 × 0.20 = $70,000.

The percentage you choose depends on what the lender will accept and what you can afford. Most conventional mortgages accept down payments as low as 3 percent. FHA loans (backed by the Federal Housing Administration) accept as low as 3.5 percent. VA loans (for military members and veterans) accept 0 percent. But the lower your percentage, the more you borrow and the more you pay in interest over time.

Why 20 Percent Matters, and What Happens Below It

Twenty percent is a threshold number in mortgage lending. If you put down 20 percent or more, you avoid private mortgage insurance (PMI). If you put down less than 20 percent, the lender requires you to pay PMI — an extra monthly fee that protects the lender if you stop paying.

PMI typically costs 0.5 to 1.5 percent of your loan amount per year, divided into monthly payments. On a $240,000 loan, that could be $100 to $300 per month on top of your regular mortgage payment. PMI stays on your loan until you have paid down the balance to 80 percent of the original home price, or until you refinance.

This means a 10 percent down payment is not half as expensive as a 20 percent down payment — it costs more because of the insurance. But it also means you can buy a house sooner if you do not have 20 percent saved. The trade-off is higher monthly payments for several years.

Accounting for Closing Costs in Your Total Cash Needed

Your down payment is not the only cash you need at closing. You also pay closing costs — fees for the loan origination, appraisal, title search, title insurance, inspections, and other services. These typically run 2 to 5 percent of the purchase price.

On a $300,000 house, closing costs might be $6,000 to $15,000. Some sellers cover part of this (called a seller concession), but you should plan to pay it yourself. This means your total cash needed is your down payment plus closing costs.

If you want to put 10 percent down on a $300,000 house, that is $30,000. Add 3 percent in closing costs ($9,000), and you need $39,000 in cash before you can close. This is why many first-time buyers aim for 5 percent down — it lowers the cash hurdle, even though it means paying PMI.

Working Backward From the Cash You Have

If you know how much cash you have saved, you can work backward to find out what price range you can afford and what percentage down that represents.

Say you have $50,000 saved. You want to keep $5,000 as a cushion after closing, so you have $45,000 to work with. If you assume closing costs will be 3 percent of the purchase price, you can set up the equation: down payment + closing costs = $45,000. If your down payment is 10 percent of the price, then 0.10 × price + 0.03 × price = $45,000. That simplifies to 0.13 × price = $45,000, which means the maximum price is roughly $346,000.

You do not need to do this algebra yourself. A mortgage calculator on a lender's website will show you the same thing: enter your cash available, your target down payment percentage, and it will show you the maximum price you can afford and what your monthly payment would be.

How Loan Type Affects Your Down Payment Options

Conventional mortgages (not backed by a government agency) typically require a minimum of 3 to 5 percent down, though some lenders go as low as 3 percent. You pay PMI if you put down less than 20 percent.

FHA loans require a minimum of 3.5 percent down. They are designed for buyers with lower credit scores or less cash saved. FHA loans always charge mortgage insurance, even if you put down 20 percent or more, so the monthly cost is higher than a conventional loan at the same percentage.

VA loans (available to military members, veterans, and surviving spouses) require 0 percent down. You pay no down payment and no mortgage insurance. If you are may be able to access, this is the lowest-cost path to homeownership.

USDA loans (for rural properties) also require 0 percent down and are available to borrowers in designated rural areas with income below a certain threshold.

The loan type you may have access to for depends on your credit score, income, military status, and the property location. Your lender will tell you which options are open to you and what down payment each one requires.

Checking Your Math Before You Commit

Once you have a target down payment percentage and a house price in mind, verify the number with your lender or a mortgage calculator. The calculation itself is simple, but the real-world details matter: some lenders charge different fees, some sellers will negotiate closing costs, and some loan programs have rules about what counts toward your down payment.

A mortgage pre-qualification letter from a lender will tell you the maximum loan amount they will give you and what down payment percentage they require. This is the most reliable way to know whether your down payment plan will actually work.

Frequently Asked Questions

Can I borrow money for my down payment?

Most lenders will not allow you to borrow the down payment from another lender, because it increases your total debt. Some allow a gift from a family member (you must document that it is a gift, not a loan). A few lenders allow you to borrow from your 401(k) or use a home equity line of credit if you own another property, but these have tax and penalty consequences. Ask your lender what sources of down payment funds they will accept.

What if I can only afford 3 percent down?

You can buy with 3 percent down on a conventional loan, but you will pay PMI until you reach 20 percent equity in the home. This adds $100 to $300+ per month to your payment. An FHA loan at 3.5 percent down is another option, though FHA always charges mortgage insurance. Both paths cost more per month but let you buy sooner if you do not have 20 percent saved.

Do I have to put down exactly 20 percent to avoid PMI?

Yes. PMI is required if your down payment is less than 20 percent. Once you have paid the loan down to 80 percent of the original home value (through regular payments), you can request to have PMI removed, but you must ask — the lender will not remove it automatically.

Can I use a gift for part of my down payment?

Yes, most lenders allow a gift from a family member to count toward your down payment. You will need a signed letter from the gift-giver stating the amount, that it is a gift (not a loan), and that they have no expectation of repayment. The lender may require the gift to be deposited in your account for a certain number of days before closing to verify it is real money.

What if the house appraises for less than the purchase price?

If the appraisal comes in lower than the agreed price, your down payment percentage goes up automatically. If you agreed to buy at $300,000 with 10 percent down ($30,000), but it appraises at $280,000, you still owe $30,000 down — which is now 10.7 percent of the appraised value. You can renegotiate the price with the seller, walk away, or cover the difference in cash.