How Much Should You Put Down on a House?
Last updated
On a $400,000 home, a 5% down payment ($20,000) leaves a $380,000 loan with PMI, while 20% down ($80,000) leaves a $320,000 loan with no PMI required. The larger down payment lowers the monthly payment by both the smaller loan and the removed insurance cost, but ties up $60,000 more cash.
There is no universally correct down payment. The size you choose changes four things: your loan amount, whether mortgage insurance applies, your monthly payment, and how much cash you have left afterward.
Key takeaways
- PMI is typically required on conventional loans above 80% loan-to-value.
- A larger down payment lowers the loan amount, the payment and (above 20%) removes PMI.
- Emptying savings to hit 20% can leave a household with too little cash cushion.
- Borrower-paid PMI on conventional loans can be cancelled once equity reaches 80% loan-to-value, and must automatically terminate at 78% if payments are current.
- FHA loans have their own mortgage insurance rules that often do not go away simply by reaching 20% equity.
Run the numbers with the Down Payment Calculator.
Common down payment levels
- 3% — available on some conventional programs for qualifying buyers; mortgage insurance applies.
- 3.5% — the standard minimum for FHA loans, which carry their own mortgage insurance premium rules.
- 5-15% — reduces the loan and the mortgage insurance premium, but insurance still applies.
- 20% — the conventional threshold at which PMI is generally not required.
- 25-30% — lowers the payment further and can improve pricing on investment properties.
Worked comparison: 5% vs 20% down on a $400,000 home
Illustrative comparison at a 6.5% rate, 30-year term
| Item | 5% down | 20% down |
|---|---|---|
| Down payment | $20,000 | $80,000 |
| Loan amount | $380,000 | $320,000 |
| Est. monthly P&I | $2,402 | $2,023 |
| Est. monthly PMI | ≈ $160-$220 | $0 |
| Est. total monthly (P&I + PMI) | ≈ $2,562-$2,622 | $2,023 |
Second comparison: 10% down with two different rates
Down payment size and interest rate interact, since a smaller loan amount also means the rate difference applies to less principal. This example holds the down payment fixed at 10% and varies only the rate, to isolate that effect.
- Home price $400,000, 10% down ($40,000), loan amount $360,000.
- At 6.0%: monthly P&I ≈ $2,159. At 7.0%: monthly P&I ≈ $2,395. The 1-point rate difference costs about $236/month, or roughly $2,832/year, on this loan amount.
- Over a 30-year term, that 1-point difference totals roughly $85,000 in additional interest paid, before any refinancing.
- This is why comparing lenders and rate locks matters as much as the down payment decision itself — a small rate difference compounds over the full loan term in a way a slightly larger down payment often cannot offset.
The trade-off against reserves
Emptying savings to reach 20% can be a worse outcome than paying PMI for a few years. Lenders look at reserves, and a new home tends to generate immediate expenses. Keep a cushion for closing costs, moving, repairs and normal emergencies rather than draining every available dollar into the down payment.
Removing PMI later
On conventional loans, borrower-paid PMI can typically be requested for cancellation once the loan-to-value ratio reaches 80% of the original value, and it must automatically terminate at 78% under federal rules, provided payments are current. FHA mortgage insurance follows different rules and often lasts the life of the loan depending on the down payment made at closing.
Down payment sources lenders recognize
- Personal savings and checking accounts, typically documented with two months of statements.
- Gift funds from a family member, usually requiring a signed gift letter confirming no repayment is expected.
- Down payment assistance programs, which vary by state and locality and may include grants or forgivable second loans.
- Proceeds from the sale of another asset, such as a prior home, documented with a closing statement.
- Retirement account withdrawals or loans — permitted by some plans, but consider the tax and penalty implications separately from the mortgage decision.
Common mistakes
- Assuming 20% is required to buy a home at all — several loan programs allow far less.
- Not tracking loan-to-value over time to request PMI cancellation once eligible.
- Draining all savings for the down payment and having nothing left for moving and immediate repairs.
- Comparing only the monthly payment without accounting for PMI's effect on the total housing cost.
- Overlooking down payment assistance programs that may be available for the property location or buyer profile.
- Assuming FHA mortgage insurance works the same way as conventional PMI when planning to remove it later.
Practical considerations
The right down payment depends on your interest rate environment, other debt, job stability and how the alternative use of that cash compares — for example, paying off higher-interest debt first, or keeping a larger emergency fund, can outweigh the benefit of avoiding PMI for some households.
Frequently asked questions
Is 20% down required to buy a house?
No. Many conventional loans allow down payments as low as 3%, and FHA loans allow 3.5%. Twenty percent is the common threshold to avoid private mortgage insurance on a conventional loan, not a minimum requirement to qualify.
How much does PMI typically cost?
PMI cost varies by credit score, loan-to-value and loan type, but it is commonly in the range of roughly 0.3%-1.5% of the loan amount per year, split into monthly payments. It is added to your regular mortgage payment and removed once you have enough equity.
Can I remove PMI before I reach 20% equity through payments alone?
Sometimes. If your home's value has risen, you may be able to request a new appraisal and ask the lender to cancel PMI once the current loan-to-value reaches the required threshold, without waiting for scheduled payments alone to get you there.
Can I use gift money for my down payment?
Many loan programs allow gift funds from family members, typically requiring a signed gift letter stating the money does not need to be repaid, along with documentation of the transfer. Requirements vary by loan program, so confirm the specific rules with your lender.
Does a bigger down payment always get me a better interest rate?
A larger down payment can improve loan-to-value-based pricing tiers on some loan programs, but it is only one factor. Credit score, loan type, term and current market rates typically matter as much or more than the down payment size alone.
Should I use retirement savings for a down payment?
Some retirement plans allow loans or early withdrawals that can be used toward a home purchase, but they can carry taxes, penalties or reduced future retirement growth depending on the account type and rules. Weigh that cost against the benefit of a larger down payment before deciding, and consider getting independent guidance for the tax implications.
Sources and references
- CFPB — Mortgage insurance explained — When PMI applies and how it is removed.
- Homeowners Protection Act of 1998 — Statutory 78% LTV automatic PMI termination rule.
- Fannie Mae — Eligibility Matrix — Minimum down payment and LTV limits for conventional loans.