Understanding Down Payments
A down payment is the upfront cash you pay when purchasing a home. It reduces the amount you need to borrow and directly impacts your monthly payment, interest costs, and whether you need Private Mortgage Insurance (PMI).
While 20% down is the traditional benchmark to avoid PMI, many loan programs allow much lower down payments: 3% for conventional, 3.5% for FHA, and 0% for VA and USDA loans.
Down Payment Formula
Down Payment Comparison
| Down Payment % | On $350,000 Home | Loan Amount | PMI? |
|---|---|---|---|
| 3% | $10,500 | $339,500 | Yes |
| 5% | $17,500 | $332,500 | Yes |
| 10% | $35,000 | $315,000 | Yes |
| 20% | $70,000 | $280,000 | No |
| 25% | $87,500 | $262,500 | No |
Frequently Asked Questions
Is 20% down payment always necessary?
No. While 20% avoids PMI and gets you the best rates, many buyers successfully purchase homes with 3-10% down. FHA loans require only 3.5%, and VA/USDA loans allow 0% down for eligible borrowers.
What is PMI and how much does it cost?
Private Mortgage Insurance protects the lender if you default. It typically costs 0.5-1.5% of the loan amount per year. On a $300,000 loan, that is $125-$375 per month. PMI can be removed once you reach 20% equity.
Should I put down more than 20%?
A larger down payment lowers your monthly payment and total interest, but consider whether those funds might earn more invested elsewhere. Also ensure you maintain an emergency fund after closing.