Down Payment Calculator

What is a Down Payment?

A down payment is the upfront amount paid by a buyer when purchasing high-value items like a home or car. In the context of real estate, it is the portion of the home’s purchase price that is not financed through a mortgage. For example, if you’re buying a house worth $300,000 and you put down $30,000, your mortgage would cover the remaining $270,000.

Down payments are usually expressed as a percentage of the purchase price. Common down payment percentages are 3.5%, 5%, 10%, or 20%. For instance, a 10% down payment on a $250,000 home would be $25000, while a 20% down payment would be $50,000.

What Are Closing Costs?

While the down payment is typically the largest upfront cost when buying a home, it is not the only one. Buyers should also be prepared for closing costs, which may include:

  • Appraisal fee
  • Inspection fee
  • Title insurance
  • Loan origination fees
  • Survey fees
  • Prepaid taxes and insurance

A good rule of thumb is to budget around 3% of the home’s purchase price for closing costs. This amount can vary depending on location, lender, and loan type.

Down Payment Requirements by Loan Type

Different types of home loans have different down payment requirements. 

Conventional Loans

  • Typically require 20% down

  • Some lenders offer options as low as 3% to 5%

  • Private Mortgage Insurance (PMI) is required if the down payment is less than 20%

FHA Loans

  • Backed by the Federal Housing Administration

  • Require as little as 3.5% down

  • Borrowers must pay 1.75% upfront mortgage insurance and ongoing monthly premiums

VA Loans

  • Available to eligible U.S. veterans and service members

  • No down payment required

  • No PMI required

USDA Loans

  • For rural and some suburban homebuyers

  • No down payment required

  • Income and location eligibility apply

Large vs. Small Down Payment

Pros of a Large Down Payment:

  • Lower monthly mortgage payments

  • Lower overall interest costs

  • No PMI for conventional loans with 20% or more down

  • Higher chances of mortgage approval

Cons of a Large Down Payment:

  • Ties up a large amount of cash

  • Less liquidity for emergencies or home improvements

  • Risk if home values drop during a recession

Pros of a Small Down Payment:

  • Less cash needed upfront

  • More flexibility with your savings

  • Opportunity to invest leftover funds elsewhere

Cons of a Small Down Payment:

  • Higher monthly payments

  • PMI required for conventional loans under 20%

  • More interest paid over the life of the loan

Sources of Down Payment Funds

1. Personal Savings

Most buyers use their savings to fund the down payment. Keeping savings in a high-yield savings account or CDs can earn interest with minimal risk.

2. Gift Funds

FHA and some conventional loans allow down payments to be gifted by family or friends. A gift letter is typically required to confirm that the funds do not need to be repaid.

3. Down Payment Assistance Programs

Offered by city, state, or nonprofit organizations, these programs provide grants or interest-free loans for first-time or low-income buyers. Check with your local housing agency or the HUD website for available options.

4. Piggyback Loans

Also known as 80-10-10 loans, this structure involves:

  • A primary mortgage for 80%

  • A second loan for 10%

  • A 10% down payment from the buyer

This method can help avoid PMI without needing a full 20% down.

5. IRA Withdrawals

  • You can withdraw up to $10,000 from a Traditional or Roth IRA without penalty for a first-time home purchase.

  • Roth IRA contributions (but not earnings) can be withdrawn anytime, tax and penalty-free.

  • Spouses can each withdraw $10,000 for a total of $20,000.

6. 401(k) Loans

  • Borrow up to $50,000 or 50% of your 401(k) balance (whichever is less)

  • No tax or penalty if repaid on time

  • Must be repaid within 5 years, which could impact mortgage approval

Your down payment plays a crucial role in determining your monthly mortgage, interest costs, and overall affordability. Whether you’re putting down 3.5% or 20%, it’s important to understand your options, the benefits and drawbacks of different loan types, and how much you’ll need upfront.

Use our Down Payment Calculator to estimate how much money you’ll need based on your target home price, loan type, and down payment percentage. 

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