Down Payment Calculator

What is a Down Payment?

A down payment is the part of a home's purchase price that you pay in cash, with the rest financed by a mortgage. It is usually quoted as a percentage of the price: 20% down on a $400,000 home is $80,000, leaving a $320,000 loan. Lenders see the down payment as your stake in the property. The more you put down, the lower their risk, which is why larger down payments tend to earn better rates and terms. The down payment is typically paid at closing, often by wire transfer or cashier's check, and earnest money deposited when your offer was accepted is usually credited toward it. Lenders will ask where the money came from, so keep records of large deposits.

Closing Costs

Closing costs are the fees and prepaid items due when the purchase is finalised, separate from the down payment. They include lender charges such as origination fees and points, the appraisal, title search and title insurance, recording fees and transfer taxes, and prepaid property taxes, homeowners insurance and interest. They typically add 2% to 5% of the loan amount. Your lender must provide a Loan Estimate within three business days of your application listing these costs, so you can include them when deciding how much cash you need.

Different Loans, Different Down Payment Requirements

Twenty percent is a common benchmark, but it is not a requirement for most buyers. Conventional loans that follow Fannie Mae and Freddie Mac guidelines allow as little as 3% down for qualifying buyers, including first-time buyer programs such as HomeReady and Home Possible. Below 20% down, the borrower pays private mortgage insurance (PMI) until the balance reaches 78% to 80% of the home's original value. Jumbo loans, which exceed the conforming loan limit, often require 10% to 20% or more.

Government-backed loans ask for less. FHA loans need 3.5% down with a credit score of 580 or higher, or 10% with a score from 500 to 579, and they carry an upfront and annual mortgage insurance premium. VA loans, available to eligible veterans, service members and some surviving spouses, usually require no down payment and no monthly mortgage insurance, though most borrowers pay a one-time funding fee. USDA loans for eligible rural and suburban areas also allow zero down for buyers within income limits, with a guarantee fee instead of PMI.

Down payments on investment properties and second homes are higher, commonly 15% to 25% for conventional loans. Requirements change over time and vary by lender, so confirm current rules before you plan.

Credit score affects the requirement too. Lenders may ask for more down from borrowers with lower scores, and the price of private mortgage insurance on a conventional loan depends on both the down payment and the score, so the same 5% down can cost very different amounts each month.

Large vs. Small Down Payment

A larger down payment lowers the loan amount and the monthly payment, reduces total interest and can qualify you for a lower rate. At 20% or more on a conventional loan, PMI is avoided entirely. You also start with more equity, which protects you if prices fall and makes it easier to refinance or sell.

Using the calculator defaults, $100,000 of cash and a 20% down payment with 3% closing costs supports a home of about $434,783, with a monthly principal-and-interest payment of $2,339 at 7.108%.

A smaller down payment gets you into a home sooner and keeps more cash available. That matters, because owning brings repairs, furnishings and moving costs, and draining savings for the down payment can leave you without an emergency fund. If home prices or rents in your area are rising quickly, waiting years to save 20% may cost more than paying mortgage insurance.

The right answer depends on your savings, the loan programs you qualify for and how long you plan to stay. Many advisers suggest putting down as much as you can while keeping three to six months of expenses in reserve. Compare the monthly payment, mortgage insurance cost and total interest for a few down payment levels with the calculators above.

Where to Get Down Payment Funds

Savings. The most common source, and the simplest for lenders to document. Setting up an automatic transfer to a separate high-yield savings account, CD or money market fund each payday helps the balance grow without temptation. Lenders generally want to see that funds have been in your account for at least two months, or a paper trail for any recent large deposits.

Piggyback loan. A second mortgage taken out at the same time as the first, so that the first mortgage stays at 80% of the price and avoids PMI. In an 80/10/10 structure, the first mortgage covers 80%, a second loan or home equity line covers 10% and you put down 10%. The second loan usually has a higher rate, so compare the total cost with simply paying PMI.

Down payment assistance programs. State and local housing finance agencies, cities and nonprofits offer grants, forgivable loans and low-interest or deferred second loans to help first-time and moderate-income buyers. Rules on income, purchase price and how long you must live in the home vary widely. Your state housing finance agency and HUD-approved housing counselors are good places to start.

Gift funds. Most loan programs allow a down payment gift from family members, and some allow gifts from employers, charities or close friends. The lender will require a signed gift letter stating that the money does not have to be repaid, along with records showing the transfer. Gifts above the annual federal gift tax exclusion require the giver to file a gift tax return, though tax is rarely owed.

IRA. First-time homebuyers, defined as not having owned a main home in the past two years, can withdraw up to $10,000 over their lifetime from an IRA without the 10% early withdrawal penalty. Income tax still applies to traditional IRA withdrawals. Roth IRA contributions can be withdrawn at any time tax- and penalty-free, and earnings can also come out tax-free under the first-home rule once the account is five years old.

401(k). Many plans allow loans of up to 50% of your vested balance, capped at $50,000, which you repay through payroll with interest paid to your own account. If you leave your job, the balance may become due quickly. Hardship withdrawals for a home purchase are also possible in some plans, but they are taxed and usually penalised before age 59½, and both options reduce your retirement savings.

Other sources include selling assets such as a car, investments or a previous home, and employer homebuying assistance programs. Seller concessions cannot be used for the down payment itself, but they can cover closing costs and free up cash. Investment proceeds can generally be used once sold and documented, though a sale may trigger capital gains tax.

Whatever the source, plan ahead. Lenders must document where the money came from, so cash kept at home and deposited shortly before closing may not be accepted, and some sources, such as 401(k) loans and gifts, take time to arrange.

Frequently asked questions

Sources

• CFPB – Owning a home: down payment
• U.S. Department of Housing and Urban Development
• IRS – Retirement topics: exceptions to tax on early distributions