What a down payment actually is and how much you need
A down payment is the cash you give to the seller on the day you close the sale. It comes out of your own money, not from the loan. The lender then finances the rest — so if a house costs $300,000 and you put down $60,000, the bank lends you $240,000.
How much you need depends on the type of loan. Conventional loans (the most common kind, from a bank or mortgage company) typically require 3% to 20% of the purchase price. Federal Housing Administration loans, called FHA loans, allow as little as 3.5%. Veterans Affairs loans, called VA loans, often require 0% down if you may have access to. The lender you choose will tell you their minimum, but you can always put down more if you have it.
The amount matters because a larger down payment means a smaller loan, which means lower monthly payments and less interest paid over time. But it also means more cash out of your pocket right now, which is why many first-time buyers aim for the minimum their lender allows.
Key Takeaways
- Down payment is calculated as a percentage of the home's purchase price, ranging from 0% for VA loans to 20% for conventional loans with the best terms.
- A 20% down payment on a conventional loan avoids private mortgage insurance (PMI), which adds $100 to $300+ per month to your payment if you put down less.
- You can use a simple formula: purchase price × percentage = down payment amount, then add closing costs (typically 2% to 5% of the purchase price) to find your total cash need.
- The down payment comes from your own savings; it is not borrowed money, so you must have it available before you make an offer.
- Different loan types have different minimums, so comparing loan options will show you which down payment amount is actually required versus optional.
The basic math: purchase price times your percentage
The calculation itself is straightforward. Take the price you agreed to pay for the house, multiply it by the down payment percentage, and that is your down payment amount.
If the house is $250,000 and you are putting down 10%, the math is: $250,000 × 0.10 = $25,000. If you are putting down 5%, it is $250,000 × 0.05 = $12,500. If you are putting down 20%, it is $250,000 × 0.20 = $50,000.
The percentage you choose depends on what your lender requires and what you can afford. A lender will tell you the minimum they will accept for your loan type. Anything above that minimum is your choice — you can put down more if you want to reduce your loan amount and monthly payment.
Why 20% matters: private mortgage insurance and what it costs
Private mortgage insurance, called PMI, is a fee the lender charges if you put down less than 20%. It protects the lender if you stop paying, but you pay for it. PMI typically costs 0.5% to 1.5% of your loan amount per year, split into monthly payments added to your mortgage bill.
On a $200,000 loan, PMI might add $100 to $300 per month to your payment. That adds up: over five years, you could pay $6,000 to $18,000 in PMI alone. Once you have paid down the loan enough or your home value rises enough, you can request to have PMI removed, but you have to ask — it does not come off automatically.
This is why some buyers stretch to reach 20% down: it eliminates PMI entirely and saves thousands over the life of the loan. But if you do not have 20% saved, a smaller down payment with PMI is still a real option. The monthly cost of PMI is usually less than the cost of waiting years to save another 10%.
Don't forget closing costs — they are separate from down payment
The down payment is only part of the cash you need on closing day. You also pay closing costs, which are fees for the loan itself, the title search, the appraisal, inspections, and the transfer of ownership. These typically run 2% to 5% of the purchase price.
On a $250,000 house, closing costs might be $5,000 to $12,500. Some of these costs can be rolled into your loan (meaning the lender adds them to the amount you borrow), but the down payment itself cannot — it must come from your own money.
To find your total cash need, add the down payment and closing costs together. If you are putting 10% down on a $250,000 house ($25,000) and closing costs are 3% ($7,500), you need $32,500 in cash before you can close.
How to work backward from the cash you have
If you know how much money you have saved, you can work backward to figure out what price range you can afford. Subtract your closing costs estimate from your total cash, and what is left is your down payment budget.
Say you have $40,000 saved. If closing costs are 3%, you need to reserve $7,500 for them (3% of the purchase price). That leaves $32,500 for the down payment. If you want to put down 10%, divide your down payment budget by 0.10: $32,500 ÷ 0.10 = $325,000. That is roughly the maximum house price you can afford with that down payment percentage.
If you want to put down 20% instead, divide by 0.20: $32,500 ÷ 0.20 = $162,500. That is a much lower price, but it avoids PMI. The trade-off between down payment size and house price is something to discuss with a lender, who can show you real numbers for your situation.
Comparing down payment requirements across loan types
Different loans have different minimums, so the down payment you need depends on which loan you use. Here is what is typical:
| Loan Type | Typical Minimum Down Payment | Who Can Use It |
|---|---|---|
| Conventional | 3% to 5% (20% to avoid PMI) | Anyone with decent credit and income |
| FHA | 3.5% | First-time buyers and others; requires mortgage insurance |
| VA | 0% | Military members, veterans, and some spouses |
| USDA | 0% | Rural property buyers who meet income limits |
A VA loan with 0% down means you do not need a down payment at all — the lender finances 100% of the purchase price. An FHA loan at 3.5% means you need $7,500 on a $250,000 house. A conventional loan at 5% means you need $12,500 on the same house.
The trade-off is that lower down payment options often come with mortgage insurance costs or other fees. Talk to a lender about which loan type makes sense for your situation, because the down payment requirement is just one piece of the total cost.
Tools and next steps for your specific numbers
Once you know the house price you are targeting and the loan type you are considering, you can plug your numbers into a down payment calculator (many lenders have free ones on their websites) to see the exact amount you need. You will also want to get a pre-approval letter from a lender, which tells you how much they will lend you based on your income and credit — that number, combined with your down payment, is your actual buying power.
Before you start house hunting, sit down with a lender or mortgage broker and walk through the numbers for your situation. They can show you what different down payment amounts mean for your monthly payment, how much PMI will cost, and which loan type gets you the best deal. That conversation is free and will give you real numbers instead of estimates.
Frequently Asked Questions
Can I borrow my down payment from someone else?
Most lenders allow a gift from a family member, but not a loan. If you borrow the money, the lender counts it as debt, which lowers how much they will lend you. A gift must come with a signed letter from the person saying it does not need to be repaid. Some lenders have limits on how much of your down payment can be a gift.
What if I can only afford 3% down?
You can use a conventional loan with 3% down, but you will pay PMI. An FHA loan at 3.5% down is also an option and may have lower interest rates for some buyers. Compare the total monthly payment (including PMI or mortgage insurance) across both options to see which costs less over time.
Do I have to put down exactly the minimum?
No. You can put down more than the minimum if you have the cash. Putting down more reduces your loan amount and monthly payment, and if you reach 20% on a conventional loan, it eliminates PMI. There is no penalty for putting down more.
Can closing costs be included in my down payment?
No. Down payment must come from your own money and cannot be borrowed. Closing costs can sometimes be rolled into the loan (added to the amount you borrow), but that increases your total debt. Ask your lender which closing costs can be financed and which must be paid in cash.
What happens if the house appraises for less than the purchase price?
If the appraisal comes in low, you still owe your down payment, but the lender may lend less than expected. You would need to pay the difference in cash, renegotiate the price with the seller, or walk away. This is why a home inspection and appraisal are important before you commit.