Down payment calculator

Down Payment Calculator

The 20% number everyone assumes, and why it’s mostly optional

Ask most people how much you need down on a house and you’ll hear “20%,” stated like it’s a rule. It isn’t. FHA loans allow as little as 3.5% down. Many conventional loans go as low as 3-5% for qualified first-time buyers. VA loans, for eligible veterans, can go to 0% down. The 20% figure persists mainly because it’s the threshold where private mortgage insurance (PMI) goes away on a conventional loan, not because it’s some legal minimum.

That doesn’t mean 20% down isn’t worth aiming for — avoiding PMI and starting with more equity are both real advantages. But for a lot of buyers, especially first-timers, waiting years to hit 20% while rents (and often home prices) keep climbing can cost more than just accepting PMI and buying sooner. It’s a genuine tradeoff, not an obvious answer either direction.

What PMI actually is, and why it doesn’t last forever

Private mortgage insurance protects the lender, not you, if you default on a conventional loan with less than 20% down. It typically runs 0.5% to 1.5% of the loan amount annually, which is why this calculator uses 0.75% as a rough middle-of-the-road estimate — your actual rate depends on your credit score, loan type, and down payment size, and can genuinely land anywhere in that range.

The part people often don’t realize: PMI isn’t permanent. Once you’ve built 20% equity — either by paying down the loan or through home value appreciation — you can typically request PMI be removed, and by federal law it’s required to be dropped automatically once you hit 22% equity based on the original purchase price and payment schedule. It’s an added cost, but a temporary one for most buyers.

Down payment isn’t the only cash you’ll need

This is where a lot of first-time buyer budgets go wrong. Closing costs — the various fees involved in actually finalizing a home purchase, from loan origination to title insurance to appraisals — typically add another 2% to 5% of the home’s price on top of the down payment itself. Save exactly enough for a 10% down payment and nothing more, and you can find yourself short at the closing table. Build a small buffer into your savings target beyond the raw down payment number this calculator gives you.

Can down payment money be a gift from family? Often yes, particularly on conventional and FHA loans, though lenders typically require a formal “gift letter” documenting that it’s not a loan you’re expected to repay. Requirements vary by loan type, so confirm with your specific lender.

Is putting down more than 20% ever a bad idea? It can be, if it drains your emergency fund or ties up money you’d otherwise invest at a higher return than your mortgage rate. There’s no universal right answer here — it depends on your other financial priorities, not just what gets you the lowest monthly payment.