How Much Should Your Down Payment Be?
The truth about the 20% down payment rule, how your deposit changes your monthly cost and PMI, and how to decide what's right for you.
"You need 20% down to buy a home" is one of the most repeated, and most misunderstood, rules in personal finance. You usually don't need 20%, but hitting it brings real benefits. Here's how your down payment actually changes the deal.
What your down payment does
Your deposit does three things at once: it reduces the amount you borrow, lowers your monthly payment, and, once it reaches 20%, removes the need for private mortgage insurance (PMI). The more you put down, the less you owe and the less interest you pay over the life of the loan.
The 20% line and PMI
Here's how different down payments play out on a $300,000 home at 6.5% over 30 years:
| Down payment | Cash needed | Loan amount | Monthly P&I | PMI? |
|---|---|---|---|---|
| 5% | $15,000 | $285,000 | ~$1,802 | Yes (~$120/mo) |
| 10% | $30,000 | $270,000 | ~$1,707 | Yes (~$110/mo) |
| 20% | $60,000 | $240,000 | ~$1,517 | No |
The 20% buyer pays less each month and skips PMI entirely, a double saving. But that extra cash takes far longer to save, which is the real trade-off.
If you buy with less than 20% down, you can usually request PMI removal once your equity reaches 20%, through payments and rising home value. It's an added cost, not a permanent one.
How to choose your number
- Aim for 20% if you can, without emptying your savings, for the lowest cost and no PMI.
- A smaller deposit is fine if it gets you into a home sooner and the numbers still work, just budget for PMI.
- Keep your emergency fund intact. A house you can't afford to maintain is worse than a slightly smaller deposit.
- Leave room for closing costs (typically 2–5%) and moving expenses.
A deposit is a classic goal to work backwards from: pick the amount and date, and a savings plan tells you the monthly number to hit it.
See how your deposit changes the payment. Adjust the down payment on any home price to compare monthly costs.
Open the Mortgage Calculator →The bottom line
Twenty percent is the target, not the requirement. A bigger deposit means a smaller loan, lower payments and no PMI, but only put down what you can spare after protecting your emergency fund. Match the deposit to your whole financial picture, not just the mortgage.
Frequently asked questions
Do I need a 20% down payment to buy a house?
No. Many loans allow 3–5% down. But putting 20% down lets you avoid private mortgage insurance (PMI), reduces your monthly payment, and means you borrow less overall.
What is PMI?
Private mortgage insurance protects the lender if you default. It is usually required when your down payment is below 20%, adds to your monthly cost, and can often be removed once you reach 20% equity.
Is a bigger down payment always better?
A bigger deposit lowers your loan, interest and payment, but not if it wipes out your emergency fund. Keep enough cash for safety and closing costs, then put the rest toward the deposit.