Down Payment Calculator

When purchasing a home, the first major hurdle is saving enough cash to secure a mortgage. For decades, home buyers have debated the economics of putting 20% down versus making a smaller down payment. The size of your down payment has a massive impact on your interest rate, your monthly payment, and whether you will be required to pay Private Mortgage Insurance (PMI).

Our free Down Payment Calculator offers three unique calculation methods to simplify your planning: **Upfront Cash Available** (calculates your affordable home price based on cash reserves), **Home Price** (estimates the exact cash needed for down payment and closing costs), and **Home Price and Cash Available** (calculates your exact down payment percentage and tells you if you will face PMI).

What is a Down Payment & How Much Do You Need?

A down payment is the upfront cash portion of a home purchase paid directly by the buyer. The remaining purchase balance is financed as a mortgage loan. While down payments are typically expressed as a percentage of the purchase price (e.g., 20% down on a $500,000 home is $100,000), you must also budget for **closing costs**.

What are Closing Costs?

Your down payment is not your only upfront expense. Closing costs are the administrative fees required to finalize your loan and transfer property ownership. These include loan origination fees, home appraisal fees, property surveys, title insurance, and prepaid escrow items (like advance property taxes and homeowners insurance).

As a rule of thumb, **closing costs hover around 3% of the home’s purchase price**. Our calculator automatically incorporates this 3% estimate to ensure you don’t find yourself cash-poor at the closing table.

Down Payment Requirements by Loan Type

Different mortgage programs have varying minimum down payment thresholds based on government guidelines:

• Conventional Loans: Typically prefer a **20% down payment** to avoid Private Mortgage Insurance (PMI). However, conventional guidelines allow down payments as low as 3% to 5% for borrowers with strong credit scores.
• FHA Loans: Backed by the Federal Housing Administration. FHA loans require a minimum down payment of only 3.5% for credit scores of 580 or higher (or 10% for scores between 500 and 579). Learn more on our FHA Loan Calculator.
• VA Loans: Guaranteed by the U.S. Department of Veterans Affairs. VA loans offer eligible military veterans, active duty members, and surviving spouses a **0% down payment** option. Model military rates on our VA Mortgage Calculator.

Pros and Cons: Large vs. Small Down Payments

Deciding whether to put down a large sum (20%+) or a small sum (3% to 10%) depends on your long-term goals and liquid cash reserves:

Making a Large Down Payment (20% or More)

• Pros: You instantly eliminate the need for monthly Private Mortgage Insurance (PMI), qualify for the lowest lender interest rates, and secure lower monthly payments because you borrow less.
• Cons: Tying up a massive amount of cash in home equity reduces your liquidity. If a recession hits or you lose your job, that cash is locked in your home and cannot be easily accessed without a high-interest home loan.

Making a Small Down Payment (3% to 10%)

• Pros: You can buy a home much sooner without waiting years to save. You also preserve cash to handle home renovations, pay off credit card debt, fund emergency reserves, or invest in the stock market.
• Cons: You will be required to pay **PMI monthly fees** (usually 0.5% to 1.5% of your loan balance annually) until your loan-to-value ratio drops to 80%. Your interest rate and monthly payments will also be higher.

6 Proven Strategies to Fund Your Down Payment

If you are struggling to reach your savings target, here are several creative ways to secure down payment funds:

1. Traditional Savings & HYSAs

Set up automated monthly transfers into a High-Yield Savings Account (HYSA) or purchase short-term Certificates of Deposit (CDs) to earn safe, guaranteed interest while you build your fund.

2. Piggyback Loans (The 80-10-10 Strategy)

If you have a 10% down payment but want to avoid PMI, you can take out a **piggyback mortgage**. This structure splits your financing into a first mortgage for 80% of the home’s value, a second mortgage for 10%, and your cash down payment for the final 10%. This avoids PMI payments and keeps you under jumbo loan thresholds.

3. Down Payment Assistance (DPA) Programs

Many state, county, and local housing authorities offer DPA grants, interest-free loans, or tax credits for need-based, first-time home buyers. These programs can cover up to 100% of your required down payment or closing costs. Check HUD’s local directories for regional options.

4. Gift Funds

For FHA and conventional loans, lenders allow your down payment to be gifted by a relative or close friend. You must obtain a signed **gift letter** confirming the funds are a gift, not a loan, and do not require repayment.

5. IRA Withdrawals

First-time home buyers can withdraw up to **$10,000 tax-and-penalty-free** from their retirement IRAs ( Roth IRA contributions can always be withdrawn penalty-free, while traditional IRA withdrawals avoid the 10% early withdrawal penalty under first-time buyer exemptions). Spouses can combine their limits to withdraw $20,000 total. The funds must be spent on home purchase expenses within 120 days of withdrawal.

6. 401(k) Loans

Most employers allow you to borrow up to $50,000 or 50% of your 401(k) balance (whichever is less) to purchase a home. You pay the interest back to yourself, and it does not trigger taxes or penalties, but you must pay the loan back (usually within 5 years) to avoid tax default.

Frequently Asked Questions (FAQ)

Do I have to put 20% down to buy a house?

No. While 20% is the gold standard to avoid paying Private Mortgage Insurance (PMI), many mortgage programs allow conventional loans with as little as 3% down, FHA loans with 3.5% down, and VA loans with 0% down.

How does PMI work, and when does it go away?

Private Mortgage Insurance (PMI) is a monthly fee added to your mortgage payment if your down payment is under 20% on conventional loans. Under the Homeowners Protection Act, PMI must be canceled by your lender once your loan balance drops to **80% of the home’s original purchase price** (or 78% automatically), provided your payments are in good standing.

How much cash should I have left over after my down payment?

Lenders prefer to see “reserves” in your account after closing to confirm you can handle emergency costs. Financial advisors recommend keeping a reserve fund equal to **3 to 6 months of housing payments** in a savings account after paying your down payment and closing costs. Check your borrowing limits on our House Affordability Calculator.

What is the difference between a down payment and earnest money?

Earnest money (or “good faith deposit”) is a small deposit (typically 1% to 2% of the purchase price) paid when you sign a home purchase contract to show the seller you are serious. At closing, your earnest money deposit is applied directly toward your final down payment and closing costs.