How much cash you really need for a down payment

The down payment is the upfront cash you bring to a real estate purchase — the portion not covered by your mortgage. It determines how much you borrow, whether you pay private mortgage insurance, and your equity position from day one.

How down payment size affects the loan

Larger down payment = smaller loan balance, lower monthly payment, less total interest over the life of the loan, and typically a better interest rate. On a $300,000 home: 5% down ($15,000) means borrowing $285,000. 20% down ($60,000) means borrowing $240,000. At 7% for 30 years, the monthly payment (principal and interest only) drops from $1,897 to $1,597 — a $300/month difference, plus the removal of PMI.

The 20% threshold and PMI

Putting less than 20% down on a conventional mortgage typically triggers private mortgage insurance (PMI). PMI protects the lender against default and typically costs 0.3-1.5% of the loan amount annually, added to your monthly payment. On a $285,000 loan at 0.8% PMI, that is about $190/month. PMI is removed once your equity reaches 20% of the home's original appraised value — you can request removal at 20%, and it is automatically removed at 22% under the Homeowners Protection Act.

Low down payment loan options

Conventional loans: Available with as little as 3% down for first-time buyers. PMI required until 20% equity is reached.
FHA loans: 3.5% down with a credit score of 580+. FHA mortgage insurance premium often lasts for the life of the loan for borrowers who put less than 10% down — a significant long-term cost difference from conventional PMI.
VA loans: Available to eligible veterans with 0% down and no PMI. A funding fee applies and can be financed into the loan.
USDA loans: 0% down for eligible rural and some suburban properties for moderate-income buyers.

Down payment assistance programs

Most states and many cities offer down payment assistance programs for first-time buyers — often as forgivable loans or grants covering 3-10% of the purchase price. Income and price limits apply and vary by program. The Down Payment Resource database (downpaymentresource.com) is a searchable tool for finding programs by state. A HUD-approved housing counselor can also identify programs you qualify for.

Frequently asked questions

Is it smarter to put more down or invest the difference?
At current mortgage rates (6.5-7.5%), the guaranteed return from reducing the loan competes more closely with expected investment returns than it did during the low-rate era. At 7% mortgage rate, paying more down is equivalent to a risk-free 7% return — competitive with balanced portfolio expectations. The math tips toward more down payment in higher-rate environments.

Should I drain my savings for a larger down payment?
No. Maintain your emergency fund even if it means a smaller down payment. Buying a home with no liquid savings leaves you vulnerable to any unexpected expense — a car repair, medical bill, or job disruption — in the first months of homeownership when you are also likely facing moving costs and immediate repairs.