How to Decide How Much to Put Down on a Home Purchase

One of the most important decisions you'll make when buying a home is how much to put down as a down payment. The right amount depends on your financial situation, loan options, and long-term goals. This guide will help you weigh the pros and cons of different down payment strategies.

What Is a Down Payment?

A down payment is the portion of the home’s purchase price you pay upfront. The rest is financed through your mortgage. For example, on a $300,000 home:

• A 20% down payment = $60,000

• A 10% down payment = $30,000

• A 3.5% down payment = $10,500

Key Factors to Consider When Choosing a Down Payment Amount

1. Your Financial Situation

Questions to ask yourself:

• How much cash do I have saved?

• Do I need to keep some savings for emergencies or future home repairs?

• Will a large down payment leave me financially stretched?

Tip: Never deplete all your savings for the down payment. Leave room for closing costs, moving expenses, and future maintenance.

2. Loan Program Requirements

Each mortgage type has its own down payment rules:

• Conventional Loans: As low as 3%, but 20% avoids mortgage insurance.

• FHA Loans: Minimum 3.5% down.

• VA Loans: 0% down for qualified veterans.

• USDA Loans: 0% down for eligible rural buyers.

Tip: Talk to a lender to see which loan types you're eligible for and how down payment amounts affect your loan terms.

3. Avoiding Private Mortgage Insurance (PMI)

PMI is usually required if you put less than 20% down on a conventional loan. It can add $50–$300+ to your monthly payment.

• Avoid PMI: Put 20% or more down.

• Eliminate PMI faster: Start with less than 20%, but plan to pay down the loan quickly.

4. Interest Rate Impact

Lenders often offer better interest rates with larger down payments. A lower rate means lower monthly payments and less interest paid over time.

5. Monthly Payment Considerations

The more you put down:

• The lower your monthly mortgage payment.

• The less interest you’ll pay overall.

• The less you'll owe on the home (better equity position).

But:

• A smaller down payment may allow you to keep cash for other investments or home improvements.

Pros and Cons of a Large vs. Small Down Payment

Aspect	Larger Down Payment	Smaller Down Payment
Equity	More equity upfront	Less equity initially
Monthly Payment	Lower	Higher
Interest Rate	Usually lower	May be higher
PMI	Not required at 20%+	Usually required under 20%
Cash Reserves	Less liquidity	More cash on hand
Loan Approval	Can strengthen application	May limit loan options

Final Tips:

• Do a full budget to see how much you can comfortably put down without compromising your financial security.

• Use online mortgage calculators to see how different down payments affect monthly payments.

• Consider your long-term plans—if you plan to move in a few years, a smaller down payment might make sense.

• Work with a mortgage professional to model scenarios based on your goals.