Buying a home usually means paying part of the price yourself and borrowing the rest. The amount you contribute is called the down payment.
But deciding how much to put down involves more than reaching a percentage. A larger down payment reduces the loan you need, while a smaller one leaves more money available for fees, repairs, and other needs.
This guide explains how down payments work, how to calculate them, and what to consider before committing your savings.
All dollar amounts below are illustrative US-dollar figures. They are not current loan offers or statements of eligibility. The percentage calculations work the same way in other currencies.
What is a down payment?
A down payment is the portion of a purchase price that a buyer pays upfront rather than financing through the main loan.
For a home purchase, it covers part of the property’s price. A mortgage typically finances the remainder.
If a home costs $400,000 and you contribute $40,000:
- Your down payment is $40,000, or 10%.
- Your mortgage covers the remaining $360,000, assuming no fees are added to the loan.
The down payment is part of the purchase price, not an additional fee on top of it.
The term can also apply to financed purchases such as vehicles. This article focuses on homes; other loan products can have different requirements.
Our guide to mortgages explained covers how the wider home loan arrangement works.
How to calculate a down payment
Use this formula:
Down payment = purchase price × down payment percentage
For a $400,000 home:
| Down payment percentage | Amount you contribute | Mortgage needed |
|---|---|---|
| 5% | $20,000 | $380,000 |
| 10% | $40,000 | $360,000 |
| 15% | $60,000 | $340,000 |
| 20% | $80,000 | $320,000 |
These are illustrations, not a list of down payments every lender accepts.
If you know the cash amount and want to calculate its percentage:
Down payment percentage = down payment ÷ purchase price × 100
A $60,000 contribution toward a $400,000 home is therefore 15%.
How much down payment do you need?
There is no single minimum that applies everywhere.
The requirement depends on the country, lender, mortgage product, property, and your financial circumstances. Some eligible buyers can access low-down-payment or no-down-payment products; others need a larger contribution.
Distinguish three questions:
- What is the minimum for a loan you qualify for?
- Would contributing more change its rate, fees, or insurance requirements?
- How much can you contribute while keeping enough cash for other needs?
A minimum tells you what a product requires. It does not tell you whether the resulting payment fits your budget.
Do you have to put 20% down?
No. 20% is a useful comparison point in some mortgage markets, not a universal requirement or an automatically ideal amount.
For example, in the United States, a conventional mortgage with less than 20% down typically requires private mortgage insurance, known as PMI. Other loan types have different arrangements.
That specific rule should not be applied to every country or mortgage product.
Ask lenders for quotes at down payment levels you can realistically afford. Compare the whole offer rather than choosing a percentage in isolation.
Why do lenders require a down payment?
A down payment reduces how much the lender advances relative to the property’s value.
If a buyer contributes $80,000 toward a $400,000 home, the lender supplies $320,000. That gives the lender more of a cushion against a fall in the property’s value than lending nearly the full price.
The contribution also gives the buyer an initial equity stake. It does not guarantee mortgage approval: lenders still assess income, debts, credit history, and the property.
Down payment and loan-to-value ratio
Loan-to-value ratio (LTV) compares the mortgage amount with the property’s value.
LTV = mortgage amount ÷ property value × 100
If the price and lender-assessed value are both $400,000, a $360,000 mortgage has a 90% LTV. A $320,000 mortgage has an 80% LTV.
A lower LTV may give access to different mortgage pricing or products. It does not guarantee a particular rate.
What if the lender values the home below the price?
The amount you need to contribute can be higher than you expected.
Suppose you agree to pay $400,000, but the lender values the property at $380,000. If that lender limits the loan to 90% of its assessed value:
- Maximum mortgage: $380,000 × 90% = $342,000
- Your contribution toward the agreed price: $400,000 − $342,000 = $58,000
You would need $58,000 toward the purchase price, rather than the $40,000 suggested by calculating 10% of the price.
This is a hypothetical lending rule. Ask how your lender handles a difference between the purchase price and valuation.
How does the down payment affect monthly payments?
A larger down payment means a smaller mortgage. At the same interest rate and repayment term, that produces a lower principal-and-interest payment.
Compare three ways to buy a $400,000 home:
| Down payment | Mortgage amount | Monthly principal and interest |
|---|---|---|
| 5% — $20,000 | $380,000 | $2,040 |
| 10% — $40,000 | $360,000 | $1,933 |
| 20% — $80,000 | $320,000 | $1,718 |
Assumptions: Fully amortizing mortgages, 5% annual interest unchanged for 30 years, monthly repayments, and no financed fees or extra payments. Figures are rounded. Taxes, insurance, mortgage insurance, and other charges are excluded.
Putting down 20% instead of 5% requires an extra $60,000 upfront and reduces the monthly principal-and-interest payment by approximately $322.
Actual quotes can differ further if the down payment changes the offered rate or insurance costs.
For the mechanics behind these payments, read mortgage interest explained.
Does a larger down payment save interest?
Yes, when the rate, repayment term, and repayment pattern stay the same, borrowing less reduces total interest.
In the comparison above:
- The $380,000 mortgage generates approximately $354,372 in interest.
- The $320,000 mortgage generates approximately $298,419 in interest.
- The difference is approximately $55,953 over 30 years.
These figures assume both loans run for the entire term at the stated rate.
The extra $60,000 contributed upfront is still your money invested in the home. It is not an interest saving. The interest saving is the borrowing charge you avoid by taking the smaller loan.
Is a larger down payment always better?
It improves some parts of the financing, but it also uses more of your available cash.
| Larger down payment | Smaller down payment |
|---|---|
| Smaller mortgage | Larger mortgage |
| Lower payments at the same rate and term | Higher payments at the same rate and term |
| Less total interest under the same repayment assumptions | More total interest under the same repayment assumptions |
| More initial equity | Less initial equity |
| Less cash left after purchase | More cash left after purchase |
| May improve pricing or reduce insurance costs | May involve additional costs or fewer product choices |
Money contributed to a home is less accessible than cash in a savings account. Recovering it can require selling, refinancing, or further borrowing, with costs and eligibility conditions.
For example, if you have $90,000 in savings, an $80,000 down payment leaves only $10,000 before fees, moving expenses, and repairs. A smaller contribution may leave a more workable reserve, although it increases borrowing.
Compare both the monthly cost and the money remaining after purchase. Our guide to how much house you can afford develops the wider affordability question.
Down payment vs deposit vs closing costs
These terms can refer to different parts of the transaction.
| Term | What it generally means |
|---|---|
| Down payment | Your contribution toward the purchase price that the main mortgage does not cover |
| Mortgage deposit | A term used in some markets for that buyer contribution |
| Booking, earnest-money, or contract deposit | Money paid at an earlier transaction stage; its treatment depends on the agreement |
| Closing or completion costs | Fees, taxes, and other expenses involved in completing the purchase and financing |
An earlier deposit may be credited toward the purchase price or amount due at completion. Do not automatically count it twice. Check the contract and final statement.
Do not assume an earlier deposit is refundable if the transaction falls through. Refund and forfeiture terms depend on the agreement and applicable rules.
A down payment also does not cover all the cash needed to buy. Additional expenses may include legal fees, valuation or survey charges, loan fees, transaction taxes, and initial insurance payments.
How much cash should you plan to have?
Build a purchase budget that separates the contribution, transaction expenses, and money retained afterward.
For example:
| Planning item | Illustrative amount |
|---|---|
| Down payment | $40,000 |
| Transaction fees and taxes | $10,000 |
| Moving and initial repairs | $5,000 |
| Cash reserve retained after purchase | $15,000 |
| Total savings target | $70,000 |
The reserve remains available to you; it is not paid to the seller or lender. These amounts are hypothetical and do not represent typical fees or a recommended reserve for everyone.
Adjust your reserve to your ongoing expenses, income stability, property condition, and other commitments. Confirm which transaction costs must be paid upfront and which, if any, can be financed.
How to save for a down payment
Set a complete target
Choose an estimated property price and a down payment amount based on products you may qualify for. Then add estimated purchase expenses and the cash you want to retain.
Calculate the monthly saving required
Monthly saving target = remaining savings needed ÷ months available
If your complete target is $70,000, you already have $25,000 allocated, and you plan to buy in 36 months:
($70,000 − $25,000) ÷ 36 = $1,250 per month
This calculation excludes savings interest and changes in property prices or costs.
If the target is unrealistic, adjust the price range, timeline, or contribution rather than assuming the gap will disappear.
Separate and automate your savings
A dedicated account makes progress easier to track. Regular transfers can turn the target into a routine, while still leaving room for normal bills and other commitments.
Match the savings method to the timeline
Money needed soon for a purchase requires attention to access and the risk of loss. Investment values can fall just when you need the funds.
Compare access restrictions, fees, and any applicable deposit protection before choosing where to hold the money.
Keep records of the source
Lenders may ask for statements or evidence showing where the funds came from. Requirements for gifts and other sources vary by product.
A genuine gift is different from money you must repay. Disclose any repayment obligation: it can affect your debts and affordability assessment.
Questions to ask before committing
- What down payment does this specific mortgage require?
- How would a larger contribution change the rate, fees, or insurance costs?
- What happens if the valuation is below the agreed price?
- Which upfront expenses are separate from the down payment?
- How will an earlier deposit be credited?
- What evidence is needed for savings or gift funds?
- How much cash will remain after completion?
- Can the household afford the ongoing payment and ownership costs?
If you are still weighing the purchase itself, rent vs buy explained considers the wider tradeoffs.
Frequently asked questions
Is the down payment added to the house price?
No. It pays part of the price. A $400,000 home bought with an $80,000 down payment and a $320,000 mortgage still has a $400,000 purchase price, before separate fees and taxes.
Does the down payment become home equity?
Assuming the home is worth the price paid and there are no other secured debts, it creates initial equity equal to your contribution. Equity is the property’s value minus outstanding secured borrowing; it changes with repayments and property values.
Can a down payment be borrowed?
Some arrangements permit borrowed contributions, while others restrict them. An additional loan also creates repayments that the mortgage lender may include in its assessment. Check the product’s rules and disclose the borrowing.
Can family help with a down payment?
Potentially. Gift funds may be accepted subject to lender rules and documentation. If the money must be repaid, disclose that obligation rather than describing it as a gift.
Does a bigger down payment guarantee approval?
No. It reduces the mortgage needed, but the lender still needs to assess the borrower and property against its criteria.
Should you wait until you have 20%?
There is no universal answer. Compare eligible offers, the resulting monthly costs, cash remaining after purchase, and the cost of waiting. Reaching a percentage alone does not establish that a purchase is affordable.
Sources and calculation notes
Country-specific sources below support particular concepts; their local product rules should not be treated as universal.
- MoneyHelper: First-time home buyer guide
- CFPB: What is private mortgage insurance?
- CFPB: Determine your down payment
- CFPB: Submit documents and answer requests from the lender
Loan examples calculated independently using the standard monthly amortization formula. Comparisons use unrounded results before rounding for display.