Down Payment Basics
The down payment is the cash you pay upfront when buying a home. It is expressed as a percentage of the purchase price. On a $350,000 home, a 20% down payment is $70,000, while a 3% down payment is just $10,500. The amount you put down affects your mortgage rate, monthly payment, and whether you need private mortgage insurance (PMI).
Down Payment Options by Loan Type
- VA Loan — 0% down — Available to veterans and active military. No PMI required. Best deal available if you qualify. You can buy a $350,000 home with $0 down
- USDA Loan — 0% down — For eligible rural and suburban properties. Income limits apply. No PMI but has a guarantee fee (1% upfront + 0.35% annual)
- FHA Loan — 3.5% down — $12,250 on a $350,000 home. Available with credit score of 580+. Requires mortgage insurance premium (MIP) for the life of the loan
- Conventional 97 — 3% down — $10,500 on a $350,000 home. Requires 620+ credit score. PMI required until you reach 20% equity, then it drops off
- Standard Conventional — 5-19% down — $17,500-$66,500 on a $350,000 home. PMI required until 20% equity. Better rates than FHA at higher credit scores
- 20% Conventional — 20% down — $70,000 on a $350,000 home. No PMI required. Best interest rates. Traditionally considered the gold standard
Down Payment by Home Price
- $200,000 home — 3%: $6,000 | 5%: $10,000 | 10%: $20,000 | 20%: $40,000
- $300,000 home — 3%: $9,000 | 5%: $15,000 | 10%: $30,000 | 20%: $60,000
- $400,000 home — 3%: $12,000 | 5%: $20,000 | 10%: $40,000 | 20%: $80,000
- $500,000 home — 3%: $15,000 | 5%: $25,000 | 10%: $50,000 | 20%: $100,000
Should You Put 20% Down?
- Advantages of 20% — No PMI (saves $100-$300/month), lower monthly payment, better interest rate, more equity from day one, lower risk of being underwater
- When less than 20% makes sense — Housing prices are rising faster than you can save (you lose more by waiting), the PMI cost is small relative to potential home appreciation, you need the cash for other priorities (emergency fund, retirement), first-time buyer programs give you favourable terms
- The hidden cost of waiting — If you wait 5 years to save 20% but home prices rise 5% annually, a $350,000 home becomes $447,000. You saved $70,000 but the home costs $97,000 more. You are worse off
Bottom line: 20% is ideal but not necessary. Many financially successful homeowners started with 3-5% down. The key is buying within your means and having a financial cushion after closing.