How to Calculate Your Mortgage Down Payment

What Your Down Payment Actually Costs

Your down payment is the money you hand over on the day you close on a house. It comes directly out of your pocket, not from the loan. The lender finances the rest — the mortgage itself — and you repay that over 15, 20, or 30 years with interest.

The size of your down payment changes what you owe each month and what you pay in total interest over the life of the loan. A larger down payment means a smaller loan, lower monthly payments, and less interest paid overall. It also affects whether you pay private mortgage insurance (PMI), a monthly fee lenders charge when your down payment is less than 20 percent of the home's price.

To estimate your down payment, you need three numbers: the home price you are targeting, the percentage you want to put down (or can afford to put down), and what that percentage equals in dollars.

Key Takeaways

• Down payment is calculated as a percentage of the home price — 3 percent, 5 percent, 10 percent, or 20 percent are common starting points, depending on your loan type and savings.
• Multiply the home price by the percentage (as a decimal) to find the dollar amount — a $300,000 home with a 10 percent down payment is $30,000.
• Down payments below 20 percent trigger PMI, an extra monthly cost that protects the lender if you default; PMI typically runs 0.5 to 1.5 percent of the loan amount per year.
• Your actual down payment may be higher than your target because closing costs (title insurance, appraisal, inspections) are paid separately and can add 2 to 5 percent of the home price.
• Federal Housing Administration (FHA) loans allow down payments as low as 3.5 percent; conventional loans typically require 3 to 5 percent minimum, though some lenders go lower.

The Basic Calculation: Home Price Times Percentage

Start with the home price. This is the purchase price you and the seller agree on, not the assessed value or what you think it is worth. If you are shopping and have not made an offer yet, use the listing price as a rough estimate.

Next, decide on a down payment percentage. Common percentages are 3 percent, 5 percent, 10 percent, and 20 percent. Your choice depends on how much you have saved, what loan type you may have access to for, and whether you want to avoid PMI.

Multiply the home price by the percentage in decimal form. For example:

• Home price: $250,000 × 0.05 (5 percent) = $12,500 down payment
• Home price: $250,000 × 0.10 (10 percent) = $25,000 down payment
• Home price: $250,000 × 0.20 (20 percent) = $50,000 down payment

That dollar amount is what you need to have available at closing. The rest of the purchase price becomes your mortgage loan.

How Down Payment Percentage Affects Your Monthly Payment

A larger down payment shrinks the loan amount, which lowers your monthly principal and interest payment. The difference compounds over 30 years.

Using a $250,000 home and a 7 percent interest rate as an example, the monthly payment (principal and interest only, not taxes or insurance) would be roughly $1,150 with a 20 percent down payment ($50,000), compared to roughly $1,450 with a 5 percent down payment ($12,500). That is a $300 monthly difference — or $108,000 over 30 years — before you even account for PMI.

However, the difference in what you need to save upfront is also real. Saving an extra $37,500 to reach 20 percent instead of 5 percent may take years. If you can afford to buy sooner with a smaller down payment and build equity while you save, that may make financial sense for your situation. A mortgage lender or housing counselor can walk through the numbers for your specific numbers and timeline.

Understanding Private Mortgage Insurance (PMI)

PMI is an insurance policy that protects the lender, not you. If you stop paying your mortgage, PMI covers part of the lender's loss. Because you are taking on more risk by borrowing a larger percentage of the home's value, the lender requires you to pay for this insurance.

PMI is typically charged as a percentage of your loan amount and added to your monthly mortgage payment. The rate varies by lender, credit score, and loan type, but generally runs between 0.5 and 1.5 percent of the loan per year. On a $200,000 loan (80 percent of a $250,000 home), PMI might add $100 to $250 per month.

PMI is not permanent. Once you have paid down the loan to 80 percent of the original home value — through a combination of payments and home appreciation — you can request that PMI be removed. Some loans remove it automatically; others require you to ask. Check your loan documents or contact your lender to understand the rules for your specific mortgage.

Down Payment Minimums by Loan Type

Different loan programs have different minimum down payments. Knowing which programs you may be may be able to access for helps you set a realistic savings target.

Conventional loans (the most common type, not backed by a government agency) typically require a minimum of 3 to 5 percent down, though some lenders offer 3 percent or even lower to borrowers with strong credit and income. These loans require PMI if you put down less than 20 percent.

FHA loans, insured by the Federal Housing Administration, allow down payments as low as 3.5 percent. They require mortgage insurance regardless of down payment size, but the insurance cost is often lower than conventional PMI. FHA loans are designed for first-time buyers and people with lower credit scores or less savings.

VA loans (for military members, veterans, and surviving spouses) often require zero down payment. USDA loans (for rural properties) also allow zero down for borrowers who meet income and location requirements. Both have their own insurance or may provide fees instead of PMI.

Your lender can tell you which programs you may have access to for based on your credit, income, and the property location. Do not assume you need 20 percent just because that is the number you hear most often.

Closing Costs Are Separate From Down Payment

Your down payment is only one part of the cash you need at closing. Closing costs — the fees for processing the loan, inspecting the home, insuring the title, and recording the deed — are paid separately and typically run 2 to 5 percent of the home price.

On a $250,000 home, closing costs might be $5,000 to $12,500. Some of these costs can be rolled into the loan or paid by the seller as part of your negotiation, but you should budget for them as out-of-pocket money unless you have a specific agreement otherwise.

When you are saving for a home purchase, add closing costs to your down payment target. If you want a 10 percent down payment ($25,000) on a $250,000 home and expect $7,500 in closing costs, you need $32,500 total before closing day.

Tools and Next Steps for Your Situation

Online mortgage calculators can show you how different down payment amounts affect your monthly payment and total interest cost. Most lenders and real estate websites offer free calculators where you enter the home price, down payment percentage, interest rate, and loan term to see the results.

A mortgage pre-qualification or pre-approval from a lender will give you a clearer picture of what you can actually borrow and what interest rate you might receive based on your credit and income. This is different from a down payment estimate, but it helps you understand whether your savings target is realistic for the homes you are looking at.

If you are working toward a down payment and want to understand what assistance programs exist in your area, a HUD-approved housing counselor can review your finances and point you toward down payment help, first-time buyer programs, or other resources. These services are free or low-cost and available through your local housing authority or a 211 referral.

Frequently Asked Questions

Can I borrow money from family for my down payment?

Yes, but lenders have rules about it. Most require a signed letter from the family member stating the money is a gift, not a loan you have to repay. Some lenders limit how much of your down payment can come from gifts. Ask your lender upfront what documentation they need.

What if I do not have 20 percent saved?

Most buyers do not put down 20 percent. FHA loans allow 3.5 percent, conventional loans often accept 3 to 5 percent, and VA and USDA loans allow zero down. You will pay PMI or mortgage insurance with a smaller down payment, but you can still buy and build equity while you save.

Does my down payment affect my interest rate?

Yes, typically. A larger down payment usually qualifies you for a lower interest rate because you are borrowing less relative to the home's value. The difference may be 0.25 to 0.5 percent, which adds up significantly over 30 years. Ask your lender for rate quotes at different down payment levels.

Can I increase my down payment after I start the mortgage process?

Yes. If you receive a bonus, inheritance, or other money before closing, you can usually increase your down payment. Tell your lender as soon as possible so they can recalculate your loan amount and monthly payment. This can lower your interest rate and eliminate or reduce PMI.

What if the home appraises for less than the purchase price?

If the appraisal comes in lower than the agreed purchase price, your down payment percentage goes up automatically because you are putting the same dollar amount toward a lower-priced home. For example, if you agreed to pay $250,000 with a $25,000 down payment (10 percent) but the appraisal is $240,000, your down payment is now 10.4 percent. You may need to renegotiate the price or bring more cash to closing.