How Much of a Down Payment Do You Really Need?

You can buy a home with as little as:

• 3.5% down (FHA loan)
• 5% down (Conventional loan)

And for many buyers, those options work very well.

The question you need to answer is: What down payment makes sense for my monthly budget and overall financial plan?

Let’s Look at Real Numbers

Assume:

• Purchase price: $400,000
• Interest rate: 6%
• 30-year fixed loan
• Estimated taxes + insurance: $600/month (this varies by area)

Option 1: 5% Down

Down payment: $20,000
Loan amount: $380,000

At 6%, the principal + interest payment is approximately $2,278/month.

Add:

• Estimated taxes + insurance: ~$600
• Estimated PMI: ~$150–$200

Estimated total monthly payment:
Around $3,050–$3,100/month

Option 2: 10% Down

Down payment: $40,000
Loan amount: $360,000

Principal + interest: approximately $2,158/month

Add:

• Taxes + insurance: ~$600
• Lower PMI (typically reduced compared to 5% down)

Estimated total monthly payment:
Around $2,900–$3,000/month

Option 3: 20% Down

Down payment: $80,000
Loan amount: $320,000

Principal + interest: approximately $1,918/month

Add:

• Taxes + insurance: ~$600
• No PMI

Estimated total monthly payment:
Around $2,500–$2,550/month

What That Means

From 5% down to 20% down, the monthly difference is roughly $500–$600 per month

That’s significant.

But that doesn’t mean 20% down is automatically better.

Putting $80,000 down instead of $20,000 means tying up an additional $60,000 in cash.

For some buyers, keeping that liquidity makes more sense.
For others, lowering the monthly payment is the priority.

The Strategy We Recommend: Backwards Planning

Instead of asking, “How little can I put down?”

Start with:

• What monthly payment feels comfortable?
• How much cash do I want to preserve?
• What gives me peace of mind?

From there, run scenarios with your lender.

If your comfort zone is $2,800/month, determine what price and down payment get you there.

If you only want to put $25,000 down, determine what purchase price keeps your payment manageable.

That’s how you build a plan.

Just Because You Can Doesn’t Mean You Should (But It Also Doesn’t Mean You Shouldn’t)

Buying with 3.5% or 5% down can absolutely work.

Putting more down can absolutely work.

The key is understanding how each choice affects:

• Your monthly payment
• Your cash reserves
• Your long-term flexibility

There’s no “right” percentage.

There’s only what aligns with your goals.

And clarity beats guessing every time!