Down Payment Guide: How Much Should You Save for a Home?
Learn how much to put down on a home, compare 20%, 10%, and 5% with a worked example, and build a simple plan to save for it.
A down payment is the part of a home's price that you pay upfront from your own savings. The rest comes from the mortgage loan. How much you put down affects your monthly payment, the total interest you pay, and whether you need extra insurance. This guide explains the trade-offs with a clear example.
Is 20% Required?
Many people believe you must put down 20%, but that is not always true. Twenty percent is a common benchmark because it often helps you avoid private mortgage insurance and may secure better loan terms. However, many loan programs allow much smaller down payments. The right amount depends on your savings, your income, the loan type, and local rules, so check the options available to you.
What Is Private Mortgage Insurance?
Private mortgage insurance, often called PMI, is a cost some lenders require when your down payment is small. It protects the lender, not you. The cost varies with your credit and down payment, and it is often somewhere around 0.5% to 1.5% of the loan amount per year. It is usually added to your monthly payment until you have built enough equity, which is the part of the home you own outright.
A Worked Example
Suppose you buy a $250,000 home with a 30-year loan at an example rate of 6.5%. The list below compares three down payments. These figures show principal and interest only and do not include taxes, insurance, or PMI.
- 20% down ($50,000): loan of $200,000, monthly payment about $1,264.
- 10% down ($25,000): loan of $225,000, monthly payment about $1,422.
- 5% down ($12,500): loan of $237,500, monthly payment about $1,501.
Going from 10% down to 20% down lowers the payment by about $158 per month. Over 30 years, the total interest paid on the 20% down loan is about $255,000, compared with about $287,000 on the 10% down loan, a difference of roughly $32,000. If PMI applies to the smaller down payment, the monthly gap is even larger.
The interest rate in this example is for illustration only and is not today's market rate. Test your own numbers with our Mortgage Calculator.
Pros and Cons of a Larger Down Payment
- Lower monthly payment and less total interest.
- More equity from day one, which can give a cushion if prices dip.
- Possibly no PMI and better loan terms.
- But it uses more cash, which can leave you short of savings for repairs, moving costs, or emergencies.
Pros and Cons of a Smaller Down Payment
- You can buy sooner, since you need less saved.
- You keep more cash for emergencies and home costs.
- But the monthly payment is higher, you pay more interest overall, and PMI may apply.
Other Cash You Will Need
The down payment is not the only upfront cost. Closing costs, which cover fees for the loan, appraisal, and legal work, are often a few percent of the home price. You should also plan for moving expenses, basic furnishings, and an emergency fund after you move in. Many buyers forget these and run short.
A Simple Saving Plan
Suppose your goal is a $25,000 down payment. If you save $500 per month, it takes about 50 months, or a little over four years. If you can save $800 per month, it takes about 32 months. These figures ignore any interest you earn, so real results may be slightly faster. If your goal is $50,000, saving $1,000 per month takes about 50 months.
To see how your savings could grow with interest, use our Compound Interest Calculator.
Tips for Saving Faster
- Set a target and a date, then divide it into a monthly amount.
- Automate transfers to a separate savings account on payday.
- Use windfalls such as bonuses or tax refunds.
- Trim regular costs using a plan like our budgeting basics guide.
- Pay down high-interest debt first. See how credit card interest works.
Connect It to Your Home Budget
Once you know how much you can put down, check what price fits your income in our guide on how much house you can afford. Do not spend your entire emergency fund on the down payment. See our guide on the emergency fund.
Final Thoughts
A larger down payment lowers your costs over time, but a smaller one can help you buy sooner. The best choice balances monthly affordability with having enough cash left over. This guide is for general education only and is not financial advice. Loan programs, insurance costs, and rules vary by location and lender, so speak with a qualified professional before you decide.
This guide is for educational purposes only and is not financial, tax, or legal advice.