How Much Should You Put Down on a House? (A Simple Guide)

The "20% down" rule is famous, but is it always the right move? Let's explore your options.

Published By Vikas Rana

You're ready to buy a home, and you keep hearing one number: 20%. The 20% down payment is the "golden rule" of home buying, but let's be honest: for many first-time home buyers, saving that much cash can feel like an impossible hurdle. The good news? It's not your only option. This guide will break down the pros and cons of putting down 20% versus a smaller amount, like 3-5%, and help you decide what's right for you.

Key Takeaways

  • »Putting down 20% helps you avoid Private Mortgage Insurance (PMI) and lowers your monthly payment.
  • »First-time buyers can use options like FHA loans (3.5% down) or conventional loans (3% down).
  • »The tradeoff for a smaller down payment is a higher monthly cost, which includes PMI.
  • »Consider down payment assistance programs and the "opportunity cost" of your cash.

The 20% Down Payment: Why It's the "Golden Rule"

There's a reason everyone talks about a 20% down payment. It's the cleanest, simplest, and cheapest way to get a mortgage. When you put down 20% of the home's purchase price, you unlock several major benefits.

  • You Avoid PMI (Private Mortgage Insurance): This is the big one. PMI is an extra monthly fee you pay to the lender as insurance for them in case you default. By putting down 20%, you prove you're a low-risk borrower and don't have to pay this fee.
  • Lower Monthly Payment: This is simple math. You're borrowing less money, which means your principal and interest payment will be lower every single month.
  • Instant Equity: You start with 20% equity (ownership) in your home, which gives you a strong financial cushion and makes it easier to borrow against your home (with a HELOC) in the future.

The Low Down Payment (3-5%): Getting in the Door Faster

Saving 20% is tough, especially with rising home prices. That's why low down payment mortgage options are so popular. These programs are designed to help you become a homeowner sooner.

  • Conventional 3% Down: Many conventional loans are available to first-time home buyers with as little as 3% down.
  • FHA Loans (3.5% Down): These government-backed loans are popular with buyers who have lower credit scores or need more flexible requirements.
  • The Tradeoff: The catch is that you WILL pay PMI. For conventional loans, this fee can be removed once you reach 20% equity. For FHA loans, the mortgage insurance (MIP) can last for the *life* of the loan, often requiring a refinance to remove.

Common Low Down Payment Options

Visualizing the Difference: 3% vs. 20% Down

Let's see what this looks like in practice. Here is a sample monthly payment for a $350,000 home with a 6.5% interest rate. Notice how the PMI adds a significant cost to the smaller down payment.

See How Your Down Payment Affects Your Monthly Bill

Want to run your own numbers? Our down payment calculator shows you exactly how different down payment amounts will change your total monthly payment, including PMI and taxes.

Use the Down Payment Calculator

How to Decide What's Right for You

There's no single right answer. Your decision depends on your personal financial situation and goals.

  • Consider "Opportunity Cost": Could the extra cash you'd use for a 20% down payment get a better return if you invested it in the stock market instead? If you expect to earn 8-10% in investments, it might be mathematically better to pay PMI (which is like a 1-2% fee) and invest the rest.
  • Don't Forget Closing Costs: Your down payment isn't the only cash you need. Closing costs can be 2-5% of the *entire loan amount*. If you use all your savings on the down payment, you'll have nothing left for these fees.
  • Look for Assistance: Before you settle, research down payment assistance (DPA) programs. Many states and cities offer grants and no-interest loans to help first-time buyers.

Opportunity Cost: Pay Down vs. Invest

Compares saving $60k in interest vs. investing $60k @ 7%

Frequently Asked Questions (FAQ)

What is PMI?

PMI, or Private Mortgage Insurance, is a fee charged by lenders when you put down less than 20% on a conventional loan. It protects the lender in case you default on the loan. It's typically added to your monthly mortgage payment.

How can I avoid paying PMI?

The primary way to avoid PMI is to make a 20% down payment. If you can't, you'll pay PMI until your loan-to-value ratio reaches 80% (meaning you have 20% equity), at which point you can request to have it removed.

What is the minimum down payment for a first-time home buyer?

It can be as low as 3% for a conventional loan or 3.5% for an FHA loan . If you're eligible for a VA loan (for veterans) or a USDA loan (for rural areas), you may even qualify for 0% down.

Is putting down less than 20% a bad idea?

Not at all! It's a trade-off. By putting down less, you get to buy a home much sooner and start building equity. The trade-off is paying a higher monthly payment that includes PMI. For many people, getting into the housing market sooner is worth the extra cost of PMI.

What is down payment assistance (DPA)?

Down Payment Assistance (DPA) programs are run by state and local governments or non-profits to help first-time buyers with grants or low-interest loans to cover their down payment and closing costs. It's always worth researching DPA programs in your area.

The "right" down payment is the one that gets you into a home without making you "house poor."

Ready to Model Your Payment?

See how your down payment affects your real monthly cost, including PMI, taxes, and insurance.

Use the Full Mortgage Calculator