A down payment is the cash you give upfront when you buy a house, and the rest comes from a loan

When you buy a home, you do not pay the full price all at once. Instead, you put down a percentage of the purchase price yourself — that is your down payment. The lender then loans you the remaining amount, which you repay over 15, 20, or 30 years (or another term you choose). The larger your down payment, the smaller your loan, and the less interest you pay over time.

Down payments typically range from 3% to 20% of the home's price, though some loans allow less and some situations call for more. A $300,000 home with a 10% down payment means you pay $30,000 upfront and borrow $270,000. That $30,000 comes from your own savings — not from the lender.

Key Takeaways

  • Your down payment is your own money paid upfront; the lender covers the rest through a mortgage loan you repay over time.
  • Down payments range from 3% to 20% depending on the loan type, and a larger down payment means a smaller loan and lower total interest costs.
  • If you put down less than 20%, you will pay mortgage insurance (PMI) as an extra monthly cost until you reach 20% equity in the home.
  • Saving for a down payment takes time, but first-time buyer programs and gifts from family can help you reach your target faster.
  • The down payment amount affects your monthly payment, your interest rate, and how much you owe the lender from day one.

How down payment size changes your monthly payment and total cost

A larger down payment lowers your monthly mortgage payment because you are borrowing less money. On a $300,000 home at current interest rates, a 3% down payment ($9,000) might result in a monthly payment around $1,700, while a 20% down payment ($60,000) could lower that to around $1,400 — a difference of $300 per month or $3,600 per year.

The down payment also affects how much interest you pay over the life of the loan. When you borrow less, interest compounds on a smaller balance, so you pay thousands less in total. Over a 30-year loan, that difference adds up significantly. However, the trade-off is that saving a larger down payment takes longer, and that time could be spent building equity in a home instead of sitting on the sidelines.

Down payments below 20% require mortgage insurance

If your down payment is less than 20%, lenders require you to pay mortgage insurance, also called PMI (private mortgage insurance). This is an extra monthly cost — typically 0.5% to 1.5% of your loan amount per year — that protects the lender if you stop paying. On a $270,000 loan, PMI might cost $100 to $300 per month.

You pay PMI until you reach 20% equity in the home, which happens through a combination of paying down the loan and (usually) the home gaining value over time. Once you hit that threshold, you can request to have PMI removed. Some loans allow you to remove it automatically; others require you to ask. This is why a 10% down payment is not necessarily worse than a 15% one — the difference in PMI cost is often small, and you keep more cash in your pocket for emergencies or other needs.

Where down payment money comes from

Most people save down payment money from their paychecks over months or years, keeping it in a separate savings account. Some use money from a bonus, inheritance, or sale of another property. Family members can also gift down payment funds — the lender will ask you to document that it is a gift, not a loan you have to repay.

First-time homebuyer programs in some states and cities offer down payment help through grants or low-interest loans. The FHA loan (Federal Housing Administration) allows down payments as low as 3.5%, making it easier for people with less savings to buy. VA loans (for military members and veterans) often require no down payment at all. USDA loans in rural areas can also have zero down payment options. Each program has its own rules about income, location, and the type of home you can buy.

The difference between down payment and closing costs

Down payment and closing costs are separate expenses, and both come due at closing. Your down payment is the percentage of the purchase price you agreed to pay. Closing costs are fees for the loan itself — appraisal, title search, inspection, attorney fees, and lender fees — and typically run 2% to 5% of the loan amount.

On a $300,000 home with a 10% down payment ($30,000) and a $270,000 loan, closing costs might be $5,400 to $13,500. So you need to save not just the down payment but also closing costs. Some lenders allow you to roll closing costs into the loan, but that means paying interest on them over 30 years. Others offer programs where the seller pays part of your closing costs, though this is negotiated as part of the purchase agreement.

How to decide what down payment size makes sense for you

The right down payment depends on how much you have saved, how quickly you want to buy, and your comfort with debt. If you have been saving for years and have 20% ready, putting that down eliminates PMI and lowers your monthly payment. If you have 10% saved and could buy now or wait two more years to save 20%, consider whether waiting is worth it — you could be building equity in a home instead, and home values often rise over time.

If you have less than 10% saved, an FHA loan at 3.5% down or a first-time buyer program might make sense. You will pay PMI, but you get into a home sooner. If you have very little saved and no family gift available, renting longer while you save is also a valid choice — there is no shame in waiting until you are ready.

Frequently Asked Questions

Can I borrow my down payment from someone?

No. Lenders require that your down payment come from your own funds or a gift. If you borrow the money, you have to disclose it, and the lender will count that loan as debt when calculating whether you can afford the mortgage. A gift from a family member is allowed, but you must sign a gift letter stating it does not have to be repaid.

What happens if I put down less than 3%?

Most conventional loans require at least 3% down. FHA loans go as low as 3.5%. Some lenders offer 1% or 2% down programs, but they are rare and come with higher interest rates and PMI costs. VA and USDA loans can have zero down, but only if you meet their specific requirements.

Can I remove PMI before I reach 20% equity?

Not usually. PMI stays on until you reach 20% equity through a combination of payments and home value increase. Some loans allow you to remove it at 20%; others require you to wait until 22% equity. You cannot simply pay extra to skip PMI — it is tied to your loan-to-value ratio, not how much you have paid.

Does a bigger down payment mean a better interest rate?

Usually yes, but not always by much. Lenders see a larger down payment as lower risk, so they sometimes offer a slightly lower rate. The difference might be 0.25% to 0.5%, which translates to a few hundred dollars per year. Shop around with multiple lenders to see what rates they offer at different down payment levels.

What if I have enough for a down payment but not for closing costs?

Ask your lender about rolling closing costs into the loan or ask the seller to cover part of them as part of the purchase negotiation. Some lenders also offer no-closing-cost loans, though the interest rate is usually higher to make up for it. You can also ask family for a gift to cover closing costs separately from the down payment.