What a Down Payment Really Covers
A down payment is the slice of a home's price you pay in cash rather than borrow. Put $80,000 down on a $400,000 house and you finance the remaining $320,000. That single number drives almost everything else about the loan: how large the mortgage is, what the monthly payment looks like, whether mortgage insurance is charged, and often the interest rate itself.
What trips buyers up is that the down payment is not the only cash you need on closing day. Closing costs land on top of it, and they are large enough to derail a purchase if nobody budgeted for them. That is why this calculator reports total cash to close as the headline figure rather than the down payment alone.
How This Calculator Works
Four tabs solve the four questions buyers actually ask, and each one is the same relationship rearranged.
The PMI cutoff date is not a rule of thumb here — the calculator amortizes the loan month by month and reports the exact month the balance crosses 78% of the original purchase price, which is the point federal rules require the lender to cancel PMI automatically.
Closing Costs: The Number People Forget
Closing costs typically run 2–5% of the purchase price and cover lender origination fees, the appraisal, title search and title insurance, recording fees, escrow setup, and prepaid property taxes and homeowners insurance. On a $400,000 home that is roughly $8,000 to $20,000 due the same day as your down payment.
A few of these are negotiable and some can be shifted. Sellers sometimes agree to pay a portion as a concession, particularly in a slower market, and certain lender fees can be rolled into the loan in exchange for a slightly higher rate. But planning as though closing costs do not exist is the single most common reason an otherwise-ready buyer has to delay a closing.
How Much Do You Actually Need?
The 20% figure is folklore treated as law. In practice the minimums are far lower, and the comparison table above prices each one on your actual numbers:
- Conventional loans — as little as 3% down for qualified first-time buyers, more commonly 5%. PMI applies below 20%.
- FHA loans — 3.5% down with a credit score of 580 or above, and they accept weaker credit than conventional lending. The trade-off is mortgage insurance that is harder to shed.
- VA loans — no down payment required for eligible service members and veterans, with no monthly mortgage insurance, though a one-time funding fee usually applies.
- USDA loans — no down payment for eligible buyers in designated rural and many suburban areas, subject to income limits.
The right question is not "what is the minimum" but "what does each option cost me per month, and what does it leave in my bank account." The table answers both at once.
PMI: What It Costs and When It Ends
Private mortgage insurance protects the lender if you default. It does nothing for you except make the loan possible with less money down. Rates typically run 0.3% to 1.5% of the loan amount annually, driven mainly by credit score and how far below 20% your down payment sits, and it is billed monthly alongside principal and interest.
The good news is that conventional PMI is temporary. You can request cancellation once the balance reaches 80% of the home's original value, and under the federal Homeowners Protection Act the servicer must cancel it automatically at 78% based on the original amortization schedule — the calculator shows exactly when that lands, along with the total PMI you will have paid by then. Paying extra principal moves that date earlier, and a significant increase in the home's value can support an earlier cancellation based on a new appraisal.
FHA works differently and it matters. FHA mortgage insurance has both an upfront premium and an annual one, and with less than 10% down the annual premium stays for the entire life of the loan. Getting rid of it means refinancing into a conventional loan once you have equity, which is why a cheap-to-enter FHA loan can be more expensive over a decade than a conventional loan with slightly more down.
Should You Put Down 20%?
Putting 20% down is genuinely better on paper: no PMI, a smaller loan, a lower payment, and usually a marginally better rate. The case against it is liquidity. Every dollar that goes into a down payment is locked in the house, reachable only by selling, refinancing, or borrowing against it — typically at the worst possible moment.
A useful way to frame it: work out the monthly PMI cost from the table above and ask what you are buying by avoiding it. If putting 20% down instead of 10% saves $150 a month in PMI but leaves you with no emergency fund, you have paid roughly $150 a month for a risk you may not want. If the extra cash is genuinely surplus after a solid emergency fund, closing costs and moving expenses, then 20% is the stronger choice.
Buyers who put less down and treat PMI as a temporary cost — then remove it at 80% equity — often end up in a stronger overall position than buyers who drained every account to reach 20%.
Where Down Payment Money Comes From
Beyond ordinary savings, lenders accept gift funds from family with a signed gift letter confirming the money does not have to be repaid. Down payment assistance programs exist in most states, often for first-time or moderate-income buyers, and can take the form of grants or forgivable second loans. Retirement accounts are a possible source but a costly one — the rules and penalties differ sharply between a 401(k) loan and an IRA withdrawal.
Whatever the source, document it early. Underwriters flag large deposits that appear shortly before an application, and an unexplained transfer can hold up a file for weeks. Moving the money into your account well ahead of applying, with a clear paper trail, avoids the problem entirely.
A Worked Example
Consider a $400,000 home at a 6.5% rate over 30 years, with closing costs at 3%.
At 20% down, you bring $80,000 for the down payment plus $12,000 in closing costs — $92,000 in cash. The loan is $320,000, the payment is about $2,023 a month, and there is no PMI.
At 10% down, cash to close drops to $52,000, which is $40,000 less out of pocket. The loan rises to $360,000 and the payment becomes roughly $2,275 plus $150 a month in PMI at a 0.5% rate. That PMI ends automatically around month 109 — just over nine years — by which point you would have paid about $16,350 for it.
So the 10% route costs roughly $402 more per month at first, and about $16,000 in PMI over nine years, in exchange for keeping $40,000 available today. Whether that trade is worth it depends entirely on what else that $40,000 needs to do.
Frequently Asked Questions
How much of a down payment do I actually need to buy a house?
Less than most people assume. Conventional loans go as low as 3% for qualified buyers, FHA loans start at 3.5%, and VA and USDA loans can require nothing down at all if you are eligible. The 20% figure everyone quotes is not a requirement — it is the threshold where private mortgage insurance stops being charged on a conventional loan.
What are closing costs and are they separate from the down payment?
Yes, they are separate, and forgetting that is the most common budgeting mistake first-time buyers make. Closing costs cover lender fees, title insurance, appraisal, inspection, escrow setup and prepaid taxes and insurance, and typically run around 2–5% of the purchase price. They are due at closing on top of your down payment, which is why this calculator adds them into the total cash figure.
What is PMI and how much does it cost?
Private mortgage insurance protects the lender, not you, and conventional loans require it whenever your down payment is under 20%. It typically costs between 0.3% and 1.5% of the loan amount per year depending on your credit score and how much you put down, charged monthly. On a $360,000 loan at 0.5%, that is $150 a month added to your payment.
When does PMI go away?
On a conventional loan, you can request cancellation once your balance reaches 80% of the home's original value, and the lender must drop it automatically at 78% based on the original amortization schedule. This calculator shows the month that automatic point arrives. FHA loans work differently — with less than 10% down, mortgage insurance stays for the life of the loan and only refinancing removes it.
Is it better to put down 20% or keep the cash?
It depends on what the cash would otherwise do. Putting 20% down avoids PMI, lowers the loan and cuts the monthly payment, but it also empties savings that could cover a job loss or a roof replacement. Many buyers are better off putting 5–10% down, keeping an emergency fund intact, and dropping PMI later once equity builds. Running out of cash the month after closing is a far bigger risk than paying PMI for a few years.
Can I use gift money for a down payment?
Usually yes, particularly for conventional and FHA loans, but the lender will want a gift letter confirming the money is a gift and not a loan, along with a paper trail showing where it came from. Large unexplained deposits shortly before applying tend to slow underwriting down, so it is worth moving gift funds into your account early and documenting them properly.
Does a bigger down payment get me a better interest rate?
Often, yes. Lenders price risk by loan-to-value ratio, so moving from 5% down to 10%, or from 15% to 20%, can nudge your rate down a little as well as removing PMI. The effect is smaller than most buyers expect — credit score usually moves the rate more than the down payment does — but the combination of a slightly better rate and no mortgage insurance is what makes 20% a meaningful milestone.
How long should it take to save a down payment?
There is no standard answer, but the Savings Goal tab turns it into a concrete number rather than a vague worry: enter the home price you are targeting, what you have saved, and what you can add each month. Most buyers shorten the timeline more by lowering the target down payment percentage — moving from 20% to 5% on the same house — than by saving harder.
This calculator provides estimates for general informational purposes only and is not financial or lending advice. Closing costs, PMI rates, loan program requirements and eligibility rules vary by lender, state and borrower, and change over time. Your official Loan Estimate and Closing Disclosure are the authoritative figures for any purchase.