Down Payment

What Is Down Payment?

A down payment is the cash you put down at closing—before the bank lends you the rest. On a $300,000 home, a 20% down payment is $60,000; you borrow $240,000. Minimums vary by loan type: conventional-loans can go as low as 3% ($9,000 on $300K); fha-loans require 3.5% with a 580+ credit score. Put less than 20% on a conventional loan and you'll pay pmi until you reach 20% equity. First-time buyers put down a median of 9% in 2024—you don't need 20% to buy, but you'll pay more if you don't.

A down payment is the initial cash you pay toward the purchase price of a home—the rest is financed with a mortgage. The size of your down payment affects your ltv, your monthly payment, and whether you pay pmi.

At a Glance

What it is: The initial cash payment toward the purchase price—the rest is financed.
Why it matters: Affects ltv, monthly payment, pmi, and approval odds.
Minimums: 3% conventional, 3.5% FHA (580+ credit), 0% VA/USDA.
20% rule: Avoids pmi on conventional loans—saves $100–300/month on typical loans.
First-time median: 9% in 2024 (~$36,000 on $400K home).

How It Works

You agree to buy a home for $320,000. The lender requires a down payment—the portion you pay in cash. The rest is the loan amount. Your ltv (loan-to-value) is the loan divided by the purchase price. A 20% down payment = 80% LTV.

Loan type minimums:

Conventional: 3–5% down. With less than 20%, you pay pmi—typically $50–200/month on a $300K loan until you hit 20% equity.
FHA: 3.5% down with credit 580+; 10% down if 500–579. FHA has its own mortgage insurance (MIP).
VA: 0% down for eligible veterans.
USDA: 0% down in eligible rural areas.

Why 20% matters: On a $300,000 home with 10% down, you borrow $270,000. PMI might run $150/month. At 20% down, you borrow $240,000—no PMI. You save $150/month and pay less interest over the life of the loan.

Why people put less: First-time buyers often don't have 20%. The median first-time down payment in 2024 was 9%—about $36,000 on a $400,000 home. FHA and low-down-payment conventional programs exist for that reason.

Real-World Example

Marcus: 10% down, $32,000 on $320K. Marcus bought a $320,000 duplex in Columbus. He put 10% down ($32,000) with a conventional-loan. His PMI is $127/month. He'll hit 20% equity in about 5 years (through principal paydown and appreciation—or he can refinance when values rise). He could've waited to save $64,000 for 20%—but that would've taken 2 more years. He chose to buy now and pay PMI.

Sarah: 3.5% FHA, $10,500 on $300K. Sarah is a first-time buyer with a 620 credit score. She used FHA—3.5% down = $10,500 on a $300,000 condo. She couldn't afford 20% ($60,000). Her FHA loan includes MIP (mortgage insurance) for the life of the loan unless she refinances to conventional. She's in the door—she'll build equity and refinance when she hits 20%.

Pros & Cons

Advantages

Larger down payment = lower monthly payment + less interest over life of loan.
20% down avoids pmi
Stronger offer—sellers and lenders prefer buyers with more skin in the game.
Lower ltv = better rates and approval odds.
More equity from day one—less underwater if the market dips.

Drawbacks

Ties up capital—money in the house isn't earning returns elsewhere.
Delays buying—saving 20% can take years; prices may rise.
Opportunity cost—that $60,000 could be invested.
First-time buyers often can't swing 20%—3–10% gets them in the door.
For investors, a larger down payment means less leverage—lower cash-on-cash return.

Watch Out

Compliance risk: None—down payment is your choice. But lenders verify your funds; large deposits need to be sourced (no undisclosed loans).
Modeling risk: Assuming you need 20%—you don't. FHA and low-down conventional programs exist for a reason.
Execution risk: Draining your emergency fund for a down payment—keep 3–6 months of reserves.
Exit risk: With a small down payment, you're more leveraged—a market dip can put you underwater (owing more than the home is worth).

Ask an Investor

The Takeaway

A down payment is the cash you put down at closing. Minimums vary: 3% conventional, 3.5% FHA, 0% VA/USDA. Twenty percent avoids pmi and saves money over the life of the loan—but you don't need it to buy. First-time buyers often put 5–10% down. The right amount depends on your savings, your goals, and whether you're okay paying mortgage insurance for a few years.