Costs
Down Payment
The upfront cash payment you make toward the purchase of a home, expressed as a percentage of the price. A 20% down payment on a $400,000 home is $80,000. Putting 20% down avoids private mortgage insurance, but many loan programs allow much less — FHA loans require just 3.5%, and conventional loans can go as low as 3%. Your down payment directly affects your loan amount, monthly payment, and equity.
Why It Matters
A down payment is the cash you put toward the purchase price upfront. While 20% is the traditional benchmark (it avoids PMI), most first-time buyers put down far less — the national average is about 6-7%. Conventional loans allow as little as 3%, FHA requires 3.5%, and VA/USDA loans offer 0% down.
The down payment decision involves trade-offs. A larger down payment means a smaller loan, lower monthly payments, no PMI, and better rates. But draining your savings to hit 20% can leave you vulnerable — most financial advisors recommend keeping 3-6 months of expenses in reserve after closing. PMI typically costs $100-$250/month and drops off at 20% equity, so it's often worth paying temporarily to preserve your emergency fund.
Real-World Example
On a $350,000 home: 3.5% FHA down = $12,250. 5% conventional = $17,500. 10% = $35,000. 20% (no PMI) = $70,000. The difference in monthly payment between 5% and 20% down: about $350/month (from lower principal + eliminated PMI). Break-even on the extra $52,500 saved: about 12-13 years.
Pro Tip
Check your state's down payment assistance programs before deciding how much to save. Many states offer $5,000-$25,000 in grants or forgivable loans for first-time buyers.