How Much Should You Put Down on a Home?
The traditional advice is 20% down, but the reality is more nuanced. On a $350,000 home, here is how different down payment amounts change your financial picture:
With 5% down ($17,500), you borrow $332,500 at 6.75% for 30 years. Monthly P&I is $2,157. PMI adds roughly $139 to $415 per month. Total monthly housing cost (with taxes and insurance) is approximately $2,796 to $3,072. Total interest over 30 years: $443,880.
With 10% down ($35,000), you borrow $315,000. Monthly P&I is $2,043. PMI adds $131 to $394 per month. Total monthly cost: $2,674 to $2,937. Total interest over 30 years: $420,437.
With 20% down ($70,000), you borrow $280,000. Monthly P&I is $1,816. No PMI required. Total monthly cost: $2,316. Total interest over 30 years: $373,658.
The difference between 5% and 20% down is $480 to $756 per month in total housing costs. Over the loan's lifetime, 20% down saves approximately $70,000 in interest alone, plus $50,000 to $150,000 in PMI payments. However, saving $70,000 requires significant time and discipline — which is why most first-time buyers put down less than 20%.
Understanding PMI: What It Costs and How to Remove It
Private mortgage insurance (PMI) is required on conventional loans when your down payment is less than 20%. PMI protects the lender — not you — against default risk. It typically costs 0.5% to 1.5% of the loan amount per year, depending on your credit score, down payment percentage, and loan type.
On a $315,000 loan (10% down on a $350,000 home), PMI at 0.8% costs $2,520 per year or $210 per month. At 1.2%, it costs $3,780 per year or $315 per month. These are significant amounts that add up quickly — at $210/month, you will pay $12,600 in PMI over 5 years before reaching the 80% LTV threshold where removal becomes possible.
How to remove PMI: Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance drops to 78% of the original purchase price. You can request removal at 80%. With a $315,000 loan on a $350,000 home, 80% of the original value is $280,000 — so PMI drops off when your balance reaches $280,000. Through regular payments alone at 6.75%, that takes about 5 to 6 years.
You can speed up PMI removal by making extra principal payments, or by requesting a new appraisal if your home has appreciated significantly. If your home's value increases from $350,000 to $400,000, your $315,000 loan is already below 80% of the new appraised value, and you can request PMI removal based on the higher value — though your lender may charge for the appraisal.
How Compound Interest Accelerates Your Savings
This calculator factors in compound interest on your savings, which makes a real difference over multi-year timelines. Here is a concrete example:
Suppose you start with $10,000 in savings and contribute $500 per month toward your down payment goal of $70,000. In a standard savings account earning 0.5% APY, you reach $70,000 in roughly 10 years. In a high-yield savings account at 4.5% APY, you reach $70,000 in about 8 years and 10 months — over a year sooner. The interest earned accounts for approximately $7,800 of your total.
If you can increase your monthly contribution to $800, the high-yield account gets you to $70,000 in about 5 years and 10 months. The combination of higher contributions and competitive interest rates can cut your saving timeline by years.
Where to park your down payment savings: high-yield savings accounts (currently 4% to 5% APY), certificates of deposit (CDs) for fixed-term savings, or money market accounts. Avoid investing down payment savings in stocks if you plan to buy within 3 to 5 years — the risk of a market downturn right when you need the money is too high. Your down payment fund should be in safe, liquid, FDIC-insured accounts.
Down Payment Assistance Programs
Several loan programs reduce or eliminate the down payment requirement, making homeownership accessible sooner:
FHA loans require just 3.5% down with a credit score of 580 or higher. On a $350,000 home, that is $12,250 instead of $70,000. The trade-off is mandatory mortgage insurance for the life of the loan — an upfront premium of 1.75% ($6,125, usually rolled into the loan) plus an annual premium of 0.55% ($1,925/year or $160/month).
VA loans offer 0% down payment for eligible veterans, active-duty service members, and surviving spouses. No PMI is required. A VA funding fee of 1.25% to 3.3% of the loan amount applies (waived for disabled veterans) but can be rolled into the loan. VA loans are one of the best mortgage products available.
USDA loans also offer 0% down for eligible buyers in designated rural areas (which include many suburban communities). Income limits apply — generally 115% of the area median income. A guarantee fee of 1% upfront and 0.35% annually is required.
Conventional 3% down loans are available for first-time buyers through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs. Income limits may apply, and PMI is required but can be removed at 80% LTV.
Many state and local housing agencies offer additional down payment assistance through grants, forgivable loans, or matched savings programs. Search your state's housing finance agency website for programs available in your area.
Costs Beyond the Down Payment
The down payment is not the only cash you need at closing. Several other costs require funds that many first-time buyers overlook:
Closing costs run 2% to 5% of the purchase price. On a $350,000 home, that is $7,000 to $17,500. These include lender origination fees, appraisal, title insurance, attorney fees, recording fees, and prepaid items like property taxes and insurance. Some of these can be negotiated — ask the seller to contribute to closing costs as part of your offer.
Home inspection: $300 to $500 for a standard inspection. Optional but highly recommended — inspectors can identify problems that cost thousands to repair. Specialized inspections (radon, termite, sewer) cost extra but are worth it in areas where these issues are common.
Moving costs: $1,000 to $5,000 depending on distance and volume. Professional movers for a local move typically cost $1,500 to $3,000. Long-distance moves are significantly more expensive.
Immediate repairs and furnishing: Budget $2,000 to $10,000 for essential items — appliances, window treatments, lawn equipment, basic furniture for any new rooms. Homes rarely come move-in ready with everything you need.
Cash reserves: Lenders want to see 2 to 6 months of mortgage payments in reserve after closing. On a $2,300/month total payment, that is $4,600 to $13,800 that you cannot spend on the down payment or closing costs.
Strategies to Save Your Down Payment Faster
Automate your savings. Set up an automatic transfer from your checking account to a dedicated high-yield savings account on each payday. Treating the transfer like a bill makes it happen consistently without willpower.
Bank windfalls. Tax refunds, work bonuses, birthday gifts, and any unexpected income should go directly to the down payment fund. A single $3,000 tax refund added to your savings each year accelerates your timeline by 4 to 6 months.
Reduce one major expense. Downgrading your car, finding a cheaper apartment, or cutting a subscription can free up $200 to $500 per month. At $300/month saved, you accumulate $3,600 per year — $18,000 over five years plus interest.
Use a dedicated account. Keep your down payment savings in a separate high-yield account that you do not touch for other expenses. This reduces the temptation to dip into the fund and lets compound interest work without interruption.
Consider gift money. Lenders allow down payment gifts from family members (and sometimes close friends) with proper documentation. A gift letter confirming the money is not a loan is typically required. Gift funds can cover part or all of the down payment on most loan programs.
The 20% Down Payment Myth
The idea that you must save 20% before buying is one of the most persistent myths in real estate. While 20% down eliminates PMI and gives you a lower monthly payment, it is not always the optimal financial strategy:
Waiting costs money too. If home prices in your market are appreciating at 4% per year, a $350,000 home becomes $364,000 in one year and $378,560 in two years. If you need three extra years to save from 10% to 20%, the home could cost $394,000 — and your 20% down payment would be $78,800 instead of $70,000. You have saved $8,800 more but the total cost increased by $44,000.
PMI is not permanent. With conventional loans, PMI drops off once you reach 80% loan-to-value. On a $315,000 loan at 6.75%, that happens in about 5 to 6 years through regular payments alone, or sooner with extra payments or home appreciation. The total PMI cost over those years may be $10,000 to $19,000 — far less than the price appreciation you would miss by waiting.
A smaller down payment preserves flexibility. Putting every dollar into a down payment leaves no emergency fund. Financial advisors recommend maintaining 3 to 6 months of expenses in reserve after buying. If putting 10% down instead of 20% lets you keep $35,000 in reserves, that cushion protects you against job loss, medical bills, or unexpected home repairs.
Frequently asked questions
How much should I save for a down payment?
Aim for at least 5% to 10% of the home price, plus 2% to 5% for closing costs, plus 2 to 6 months of expenses in reserves. On a $350,000 home, that means $17,500 to $35,000 for the down payment, $7,000 to $17,500 for closing costs, and $5,000 to $14,000 in reserves — a total of $29,500 to $66,500. If you can reach 20% down ($70,000), you avoid PMI, but it is not required.
What is PMI and how much does it cost?
Private mortgage insurance protects the lender when your down payment is less than 20%. It typically costs 0.5% to 1.5% of the loan amount per year. On a $315,000 loan, that is $1,575 to $4,725 annually ($131 to $394 per month). PMI is added to your monthly mortgage payment and can be removed once you reach 80% loan-to-value ratio.
When is PMI removed from my mortgage?
Your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price. You can request removal at 80%. Through regular payments on a 30-year loan at 6.75%, reaching 80% LTV takes about 5 to 10 years depending on your down payment. Home appreciation can speed this up — if your home value rises, you can request a new appraisal and have PMI removed sooner.
What is the minimum down payment for an FHA loan?
FHA loans require 3.5% down with a credit score of 580 or higher. With a score between 500 and 579, you need 10% down. On a $350,000 home, the minimum FHA down payment is $12,250. However, FHA loans charge mortgage insurance for the entire loan term (1.75% upfront plus 0.55% annually), which makes them more expensive long-term than conventional loans with PMI that drops off at 80% LTV.
Are there first-time homebuyer programs that help with down payments?
Yes. Options include FHA loans (3.5% down), VA loans (0% down for veterans), USDA loans (0% down in rural areas), and conventional 3% down programs (Fannie Mae HomeReady, Freddie Mac Home Possible). Many state and local housing agencies offer additional grants, forgivable loans, or matched savings programs. Search your state housing finance agency's website for programs in your area.
Should I drain my savings for a larger down payment?
No. Always maintain an emergency fund of 3 to 6 months of living expenses after the down payment and closing costs. A larger down payment reduces your monthly payment and eliminates PMI, but having no reserves leaves you vulnerable to unexpected expenses. It is better to put 10% down and keep $20,000 in reserves than to put 20% down and have nothing left.
Can I use gift money for my down payment?
Yes. Most loan programs allow down payment gifts from family members with a gift letter confirming the money is not a loan. FHA, VA, and conventional loans all accept gift funds, though conventional loans may require you to contribute some of your own funds (typically 5% of the purchase price). Your lender will need documentation of the gift and may trace the funds through your bank statements.
How long does it take to save for a down payment?
It depends on your target amount and monthly savings rate. Saving $500/month toward a $35,000 goal (10% of $350,000) takes about 5.5 years in a high-yield savings account at 4.5% APY. Saving $800/month reaches the same goal in about 3.5 years. Use the calculator above to model your specific savings rate, current balance, and target amount.