How Much Do You Really Need for a Down Payment?
Twenty percent is a norm, not a requirement. Here is what each down payment level actually costs and saves.
Fact-checked and reviewed for financial accuracy by Priya Kannan, CFP®. Read our content review process.
The belief that you need 20 percent down keeps a large number of otherwise-ready buyers renting. You do not. Conventional loans start at 3 percent, FHA at 3.5 percent, and VA and USDA at zero. What 20 percent buys you is the elimination of mortgage insurance and a modestly better rate.
The trade-off, in numbers
| Down payment | Loan amount | Monthly P&I | Monthly PMI (est.) | Cash needed at closing (est.) |
|---|---|---|---|---|
| 5% – $20,000 | $380,000 | $2,402 | ~$190 | ~$30,000 |
| 10% – $40,000 | $360,000 | $2,275 | ~$135 | ~$51,000 |
| 20% – $80,000 | $320,000 | $2,023 | $0 | ~$92,000 |
Between 5 percent and 20 percent, the monthly difference is roughly $570 — and the cash difference is $60,000. Whether that trade is worth it depends on what else that $60,000 would be doing.
When a smaller down payment is the better choice
- It preserves an emergency fund you would otherwise spend to the last dollar
- It lets you buy now rather than in three years, in a market where prices are rising faster than you can save
- PMI is removable — typically within a few years of ordinary payments plus appreciation
- You have higher-return uses for the cash, such as an employer retirement match you are not fully capturing
When to put more down
- You have savings well beyond a comfortable reserve
- Your debt-to-income ratio is tight and a smaller payment gets you approved
- You plan to stay long enough that the interest savings compound meaningfully
Removing PMI later
On a conventional loan, PMI must be cancelled automatically when the balance reaches 78 percent of the original value, and you may request cancellation at 80 percent. If your home has appreciated, you can often request removal earlier based on a new appraisal — a few hundred dollars that can save well over a thousand a year.
Frequently asked questions
Can I use gift money for a down payment?
Yes, on most programs, with a signed gift letter confirming it is not a loan. Lenders will want to see the transfer and often the donor's account statement.
Can I borrow from my 401(k) for a down payment?
Many plans allow it, but it carries real risk: if you leave the job, the balance may become due quickly. Discuss with a financial professional before taking it.
Editorial note. This article is educational and is not financial, tax, or legal advice. Loan terms, rates, insurance costs, and tax rules vary by lender, state, and individual circumstance. Figures shown are illustrative. Confirm details with a licensed lender, tax professional, or attorney before making a decision.
