Down Payment Guide: How Much Should You Actually Put Down?
The conventional wisdom is "put 20% down." But that's not always right for every buyer. Here's how to think through the tradeoffs at every down payment level.
Why 20% Is the "Magic Number"
20% down eliminates PMI (private mortgage insurance), gives you instant equity, and lowers your monthly payment. It also demonstrates to lenders that you're a low-risk borrower. But 20% on a $400,000 home is $80,000 — a significant sum that takes years to save.
Down Payment Options Compared
| Down % | On $400k | PMI? | Monthly P&I est.* | Best For |
|---|---|---|---|---|
| 3% | $12,000 | Yes | ~$2,593 | First-time buyers with low savings (FHA/conventional) |
| 5% | $20,000 | Yes | ~$2,529 | Buyers balancing down pmt vs emergency fund |
| 10% | $40,000 | Yes | ~$2,395 | Middle ground — less PMI exposure |
| 20% | $80,000 | No | ~$2,129 | Most buyers — best rate, no PMI |
| 30%+ | $120,000+ | No | ~$1,862 | Conservative buyers, high-cost markets |
*Estimated at 7% interest, 30-year term, taxes/insurance not included.
The Case Against 20% (Sometimes)
Putting more down isn't always the right move. Consider:
- If 20% down depletes your emergency fund, you're vulnerable to any unexpected repair or life event in year one.
- The stock market has historically returned 7–10%/year. Keeping extra cash invested may outperform the PMI cost.
- In appreciating markets, getting in earlier with less down can outperform waiting to save 20%.
What You Actually Need to Close
The down payment is just one part of your upfront cash. Add:
- Closing costs: 2–4% of purchase price
- Prepaid escrow for taxes/insurance: 1–2%
- Inspection and moving: $1,500–$3,000
- Emergency fund (keep 3–6 months of costs intact)
Educational tool. Consult a licensed financial planner before deciding on your down payment strategy.