The down payment is the portion of the home price you pay in cash upfront. The rest is financed. How much you put down affects your monthly payment, whether you need PMI, your loan options, and how much cash you have left for reserves and life after closing.
Minimum Down Payments by Loan Type
| Loan type | Minimum down | Notes |
|---|---|---|
| Conventional (conforming) | 3% | PMI required below 20% |
| FHA | 3.5% | MIP for life of loan if <10% down |
| VA | 0% | No PMI; one-time funding fee |
| USDA | 0% | Rural areas only; income limits |
| Jumbo | 10–20% | Varies by lender |
The 20% Benchmark
20% down is the threshold that eliminates PMI on a conventional loan. On a $450,000 home, that's $90,000 — a significant amount of cash. The benefit is that your monthly payment is lower (no PMI) and your loan balance is smaller from day one.
But tying up $90,000 in a down payment has an opportunity cost. That cash can't be used for emergency reserves, repairs, or investments. For many buyers, it makes more financial sense to put down less and keep liquidity.
The 10% Sweet Spot
10% down is often the practical middle ground:
- PMI will be required, but it's cancellable
- Monthly payment is manageable
- You preserve cash reserves
- On a conventional loan, you can request PMI cancellation when the balance hits 80% — which typically takes 8–10 years at normal payments, or sooner with extra payments
Down Payment vs. Monthly Payment Trade-Off
On a $450,000 home at 7.0% (30-year fixed):
| Down payment | Loan amount | P&I payment | PMI/mo (~0.8%) | Total P&I+PMI |
|---|---|---|---|---|
| 3% ($13,500) | $436,500 | $2,904 | $291 | $3,195 |
| 10% ($45,000) | $405,000 | $2,695 | $270 | $2,965 |
| 20% ($90,000) | $360,000 | $2,396 | $0 | $2,396 |
Going from 10% to 20% saves about $570/month — but requires $45,000 more in cash at closing. That's a roughly 79-month break-even (about 6.5 years), assuming that extra $45k generates no return elsewhere. It's not as automatic a win as it looks.
Don't Drain Your Emergency Fund
One of the most common first-time buyer mistakes: putting every available dollar into the down payment and closing costs, leaving no emergency reserve. Homeownership comes with unexpected expenses — appliances, HVAC, roof, plumbing. Most financial advisors recommend keeping 3–6 months of expenses in cash even after closing.
If maxing out your down payment leaves you with less than 2 months of reserves, consider a smaller down payment and keep the cushion.