The basic calculation: percentage of the purchase price
Your down payment is the cash you put toward the house at closing, expressed as a percentage of what you are paying for it. The formula is straightforward: down payment amount divided by purchase price equals your down payment percentage. If you are buying a house for $300,000 and putting $60,000 down, your down payment is 20 percent.
The percentage matters because it determines your loan amount, your monthly payment, and whether you will pay mortgage insurance. A larger percentage means you borrow less, which means lower insurance costs and a smaller monthly payment. A smaller percentage means you borrow more and pay mortgage insurance until you reach 20 percent equity in the home.
Lenders typically allow down payments ranging from 3 percent to 25 percent, though the exact range depends on the loan type and your financial profile. Conventional loans often require 5 to 20 percent. FHA loans allow as little as 3.5 percent. VA loans may allow zero down if you are a may have access to veteran. USDA loans also allow zero down for rural properties if you meet income limits.
Key Takeaways
- Down payment percentage equals the amount you are putting down divided by the total purchase price, then multiplied by 100.
- A 20 percent down payment eliminates mortgage insurance but is not required—many buyers put down 5 to 10 percent instead.
- Your down payment affects your loan amount, monthly payment, and whether you pay private mortgage insurance (PMI) each month.
- The purchase price is what you negotiated with the seller, not the appraised value or assessed value—use the actual contract price.
- Closing costs are separate from your down payment and typically add 2 to 5 percent more to your total cash needed at closing.
What counts as your down payment amount
Your down payment is the cash you bring to closing. This can come from your savings, a gift from a family member, or proceeds from selling another property. Some loan programs allow you to use funds from a retirement account or a first-time homebuyer savings account, though rules vary by program and state.
What does not count toward your down payment: earnest money (the deposit you made when you made an offer), inspection fees, appraisal fees, title insurance, or any other closing costs. These are separate expenses you pay on top of your down payment. This is why your total cash needed at closing is always higher than your down payment alone.
If you are receiving a gift, the lender will require a gift letter from the person giving you the money. The letter must state that the funds are a gift, not a loan you have to repay. Some lenders require the gift-giver to have funds in their account for a set period before the gift is transferred, to prove the money is real and not borrowed.
How down payment percentage affects your monthly payment
The larger your down payment percentage, the smaller your loan amount, and the smaller your monthly principal and interest payment. On a $300,000 house at 7 percent interest over 30 years, the difference is significant. A 10 percent down payment ($30,000) means you borrow $270,000, with a monthly payment around $1,797. A 20 percent down payment ($60,000) means you borrow $240,000, with a monthly payment around $1,597. That is a $200 monthly difference.
But the monthly payment is only part of the cost. When you put down less than 20 percent, you also pay private mortgage insurance (PMI) each month. PMI protects the lender if you default; it does not protect you. The cost varies by lender and loan type but typically ranges from 0.5 to 1.5 percent of your loan amount per year, divided into your monthly payment. On a $270,000 loan, PMI might add $112 to $337 per month.
This means a 10 percent down payment might cost you $1,797 plus PMI, while a 20 percent down payment costs $1,597 with no PMI. The 20 percent option saves you money every month, but it requires $30,000 more cash upfront. The choice depends on whether you have that cash available and whether you would rather keep it invested elsewhere.
The difference between purchase price and appraised value
Always calculate your down payment based on the purchase price—the amount you negotiated with the seller and signed in the contract. Do not use the appraised value, the assessed value, or the estimated market value. These are different numbers and using them will confuse your calculation.
The appraised value is what an independent appraiser determines the house is worth. If you negotiate to buy a house for $280,000 but it appraises at $290,000, your down payment is still calculated on $280,000. If it appraises at $270,000, the lender may require you to put more down or renegotiate the price, but your down payment calculation does not change—it is still based on what you agreed to pay.
The assessed value is what your local tax assessor determines for property tax purposes. This is usually different from both the purchase price and the appraised value. It has no role in your down payment calculation.
Down payment examples across different loan types
Different loan programs set different minimum down payments, and each one affects how much you borrow and whether you pay mortgage insurance. Understanding these differences helps you compare what your actual monthly cost will be under each option.
| Loan Type | Minimum Down Payment | Typical Range | Mortgage Insurance Required |
|---|---|---|---|
| Conventional | 3 to 5 percent | 5 to 20 percent | Yes, if under 20 percent |
| FHA | 3.5 percent | 3.5 to 10 percent | Yes, always |
| VA | 0 percent | 0 to 20 percent | No |
| USDA | 0 percent | 0 to 20 percent | Yes, if under 20 percent |
On a $300,000 house, a conventional loan with 10 percent down means you put $30,000 down and borrow $270,000. An FHA loan with 3.5 percent down means you put $10,500 down and borrow $289,500. The FHA option requires less cash upfront but you pay mortgage insurance for the life of the loan, not just until you reach 20 percent equity. A VA loan with zero down means you put nothing down and borrow $300,000, with no mortgage insurance at all.
How to calculate total cash needed at closing
Your down payment is not your only cash expense at closing. You also pay closing costs, which typically range from 2 to 5 percent of the purchase price. These include the appraisal fee, title insurance, lender fees, attorney fees (in some states), property taxes, homeowners insurance, and HOA fees if applicable.
To estimate your total cash needed: take your down payment amount and add 2 to 5 percent of the purchase price. On a $300,000 house with a 10 percent down payment ($30,000), closing costs might be $6,000 to $15,000. Your total cash needed would be $36,000 to $45,000. Some closing costs can be negotiated or paid by the seller, but you should plan for the full amount and be pleasantly surprised if some are covered.
Your lender will provide a Closing Disclosure form at least three days before closing. This document itemizes every cost and shows exactly how much cash you need to bring. Do not rely on estimates alone—use the Closing Disclosure as your final number.
Frequently Asked Questions
Can I use a gift for my entire down payment?
Yes, many lenders allow the entire down payment to be a gift from a family member. You will need a signed gift letter stating the funds are a gift and not a loan. Some lenders require the gift-giver to have the funds in their account for 30 to 60 days before transfer to verify the money is real.
What happens if the house appraises for less than the purchase price?
If the appraisal comes in lower than your offer, the lender will only lend based on the appraised value. You can renegotiate the price with the seller, put more money down to make up the difference, or walk away. Your down payment percentage will be recalculated based on whichever price you ultimately agree to.
Is 20 percent down required to avoid mortgage insurance?
Yes, 20 percent is the standard threshold for conventional loans. Below 20 percent, you pay private mortgage insurance. FHA loans require mortgage insurance at any down payment level. VA and USDA loans do not require mortgage insurance even with zero down, but they have other requirements and fees.
Can I calculate my down payment as a percentage of the appraised value instead of the purchase price?
No. Always use the purchase price from your contract. The appraised value is determined after you have already agreed to buy, and it may be higher or lower than what you negotiated. Your down payment is based on what you agreed to pay, not what the house is worth.
Do I need to have my full down payment saved before I make an offer?
You need to show proof of funds to the seller when you make an offer, but you do not need to have it all in one account. Lenders will review bank statements, investment accounts, and gift letters to verify you can cover the down payment and closing costs. The funds must be available and verifiable, but they can come from multiple sources.