The basic math: what you owe upfront
Your down payment is the money you give the seller on the day you close the sale. It comes out of your own pocket, not from the loan. The amount you need depends on three things: the home's purchase price, the percentage the lender requires, and any gifts or savings you have available.
The simplest way to calculate it: multiply the home price by the down payment percentage, and that is what you owe. If you are buying a $300,000 home and putting down 20 percent, you multiply $300,000 by 0.20, which equals $60,000. That $60,000 comes from you before the lender funds the rest.
Most lenders let you put down anywhere from 3 percent to 20 percent of the purchase price, though some programs go lower. The lower your down payment percentage, the more you borrow, and the more interest you pay over the life of the loan. The higher your down payment, the less you borrow and the lower your monthly payment.
Key Takeaways
- Down payment amount equals the home price multiplied by the percentage your lender requires, and this money comes from your own savings or gifts.
- Common down payment percentages are 3 percent, 5 percent, 10 percent, and 20 percent, and each one changes how much you borrow and what you pay monthly.
- Putting down less than 20 percent usually means you will pay mortgage insurance on top of your loan payment, which adds to your monthly cost.
- Your lender will tell you the minimum down payment they accept, and you can choose to put down more if you have the money available.
Why the percentage matters more than the dollar amount
The percentage is what your lender cares about, not the raw dollar number. A lender might say "we require 10 percent down," and that percentage stays the same whether the house costs $200,000 or $500,000. Your job is to figure out what 10 percent of your specific home price is.
Different loan types have different minimums. Conventional loans (the most common kind) often start at 3 percent down. Federal Housing Administration loans, called FHA loans, often allow 3.5 percent down. Veterans Affairs loans sometimes allow zero percent down if you are a veteran. Your lender will tell you their minimum when you ask about a loan.
The percentage also determines whether you pay mortgage insurance. If you put down less than 20 percent on a conventional loan, you will pay private mortgage insurance, or PMI. This is an extra monthly charge added to your payment. The lower your down payment percentage, the higher your PMI cost, because the lender is taking on more risk.
Working backward from what you have saved
You may not have a choice about the percentage if your savings are limited. Start with the amount of money you actually have available right now. Subtract closing costs (usually 2 to 5 percent of the home price) from that amount, because closing costs are separate from the down payment and come due on the same day.
Once you know what is left, divide that number by the home price you are looking at. That tells you what percentage down you can afford. If you have $40,000 saved and you want to buy a $300,000 home, you divide $40,000 by $300,000, which equals 0.133, or about 13 percent down.
If that percentage is lower than what a lender requires, you have two choices: save more money, or look at less expensive homes. Some people also receive gifts from family members to boost their down payment. If you use a gift, the lender will ask for a letter from the person who gave it, stating that it does not need to be repaid.
How down payment size affects your monthly payment
A larger down payment lowers your monthly mortgage payment because you are borrowing less money. It also lowers the total interest you pay over 15 or 30 years. But it also means less money in your pocket right now for emergencies or other needs.
Here is a concrete example. On a $300,000 home at 7 percent interest over 30 years: putting 10 percent down ($30,000) means you borrow $270,000, and your monthly payment is roughly $1,800 before taxes and insurance. Putting 20 percent down ($60,000) means you borrow $240,000, and your monthly payment drops to roughly $1,600 before taxes and insurance. That is a $200 difference every month for 30 years.
The trade-off is that you have $30,000 less in savings if you put 20 percent down instead of 10 percent. Some people prefer to keep that money for emergencies, home repairs, or other goals. Others prefer the lower monthly payment. There is no single right answer — it depends on your situation.
When to put down more than the minimum
If you have savings beyond what the lender requires, you can choose to put down more. This makes sense if you want a lower monthly payment, if you want to avoid mortgage insurance, or if you want to own more of the home outright from day one.
Putting down 20 percent is a common target because it eliminates PMI on conventional loans. If you are close to 20 percent, it may be worth saving a bit longer to reach it, since PMI can add $100 to $300 per month depending on the loan size.
However, do not drain your emergency fund to reach a higher down payment. Lenders want to see that you have money left over after closing to handle unexpected repairs or job loss. Most lenders ask about your savings and assets during the loan process.
Common down payment scenarios and what they cost
Here are real examples of how down payment percentage changes what you owe and what you pay monthly. These use a $250,000 home price, 7 percent interest, and a 30-year loan, before taxes and insurance:
| Down Payment % | Down Payment $ | Amount Borrowed | Monthly Payment (approx.) | Mortgage Insurance? |
|---|---|---|---|---|
| 3% | $7,500 | $242,500 | $1,615 | Yes, adds ~$150/month |
| 5% | $12,500 | $237,500 | $1,580 | Yes, adds ~$120/month |
| 10% | $25,000 | $225,000 | $1,498 | Yes, adds ~$75/month |
| 20% | $50,000 | $200,000 | $1,330 | No |
Notice that the monthly payment drops as your down payment goes up, and mortgage insurance disappears at 20 percent. The actual numbers for your home will differ based on the interest rate you receive, your location, and your credit score, but the pattern stays the same.
Frequently Asked Questions
Can I use a gift from family as part of my down payment?
Yes. Most lenders allow gifts from family members, but they will ask for a signed letter from the person who gave the money stating it is a gift and does not need to be repaid. Some lenders limit how much of your down payment can be a gift — many require at least 5 to 10 percent to come from your own savings. Ask your lender about their gift policy before you accept money.
What happens if I put down less than 3 percent?
Most conventional lenders do not allow down payments below 3 percent. FHA loans go as low as 3.5 percent. If you have less saved, you may need to wait and save more, look at less expensive homes, or explore first-time buyer programs in your state that sometimes offer down payment help. Your local housing authority or a community bank can tell you what programs exist in your area.
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 money is yours and has been in your account for at least 60 days. Some lenders have exceptions for family loans, but they will ask for documentation. Ask before you borrow.
What if I want to put down more than 20 percent?
You can put down as much as you want. There is no upper limit. Putting down more than 20 percent lowers your monthly payment further and means you owe less interest over time, but it also means less money in your savings. Make sure you keep enough for emergencies and closing costs.
Does my down payment percentage affect the interest rate I get?
Yes, usually. Borrowers who put down 20 percent or more often receive lower interest rates than borrowers who put down 5 percent, because the lender is taking on less risk. The difference can be 0.25 to 0.5 percent, which adds up over 30 years. Ask your lender how your down payment percentage affects the rate they are offering.