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How Much Should You Put Down on a House?

Budgeting & Saving · 6 min read

"You need 20% down to buy a house" is the most persistent myth in real estate. The median first-time buyer actually puts down far less — and sometimes a smaller down payment is genuinely the smarter financial move. Here's how to think about the decision instead of defaulting to folklore.

What a bigger down payment buys you

A smaller loan, which means a lower monthly payment and less total interest
No PMI at 20% — private mortgage insurance disappears from the equation entirely
Sometimes a slightly better rate — lenders price risk, and more equity is less risk
Instant equity cushion — protection if home values dip and you need to sell early
Stronger offers — in competitive markets, larger down payments signal a deal less likely to collapse in underwriting

What a bigger down payment costs you

Every extra dollar you put down is a dollar that's now illiquid — locked in the walls of your house, retrievable only by selling or borrowing against the home. The hidden risks of over-stretching for 20%:

Empty reserves. The classic first-time buyer disaster is draining every account to hit 20%, then facing a $6,000 HVAC failure in month three with no cushion. A smaller down payment with healthy reserves is more resilient than a big one with nothing left.
Waiting years while prices rise. Saving from 10% to 20% might take three more years — during which home prices and rents may climb faster than your savings account.
Opportunity cost. Money put down earns you the mortgage rate in avoided interest. If your mortgage is at 6.5%, that's a solid guaranteed return — but funds needed for retirement matching or paying off 24% credit card debt have better uses.

The PMI question, honestly

PMI has a bad reputation it only partly deserves. For a borrower with good credit, PMI on a 10%-down conventional loan might run $50–$150 a month — and it's temporary, cancellable at 20% equity and automatically terminated at 22%. Paying a modest, temporary premium to buy years sooner (and start building equity years sooner) is often a perfectly rational trade. PMI is not a moral failing; it's a fee for leverage. Run the actual numbers rather than treating "avoid PMI" as an absolute rule.

A framework by down payment size

Down payment	Best fit
3–5%	Strong income but early in savings; want to stop renting sooner; comfortable with PMI as the cost of speed
10%	The pragmatic middle: meaningfully lower PMI and payment, while preserving reserves
20%	Savings are strong enough that hitting 20% still leaves 3–6 months of expenses in reserve
More than 20%	Only when reserves, retirement contributions, and high-interest debt are all already handled

Don't forget: down payment isn't your only cash need

Whatever percentage you choose, closing costs add another 2–5% of the loan amount, and you'll want reserves after closing. A useful planning identity: total cash needed = down payment + closing costs + 3–6 months of expenses. If a 20% down payment breaks that equation, it's too big for your situation right now. You can estimate the closing-cost piece precisely with our closing cost estimator.

Down payment assistance is real

Most states and many cities run down payment assistance programs — grants, forgivable loans, or low-interest second loans for first-time and moderate-income buyers, often bindable to FHA or conventional first mortgages. Requirements vary (income limits, purchase price caps, homebuyer education courses), but thousands of buyers use them every year. Ask lenders specifically whether they participate in your state's housing finance agency programs; not all do, and it's free money left on the table otherwise.

The honest answer: the right down payment is the largest one that still leaves you with 3–6 months of reserves after closing — and not a dollar more than that until your other financial priorities are funded.

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