How much should I save for a down payment?

If you are saving for a house, "how much do I need for the down payment?" is usually the first dollar figure that matters — and the answer is almost never the one number people expect. The famous 20% benchmark is real, but it is a target that unlocks a specific benefit, not a wall you have to clear to get a loan. Plenty of Americans buy homes with 3% to 5% down, and some put down nothing at all.

The right amount depends on the loan you use, whether you want to avoid mortgage insurance, and how much cash you can part with while still keeping a safety net. Let's break down each piece so you can put a real number on your savings goal.

The 20% benchmark: what it actually buys you

The reason "20% down" is repeated so often is that, on a conventional loan, it is the threshold at which lenders stop requiring private mortgage insurance (PMI). Put down 20% and your loan is for 80% of the home's value — an 80% loan-to-value (LTV) ratio — which lenders view as low enough risk to skip the insurance. That makes 20% a genuinely useful goal:

• No PMI — you skip an extra monthly charge that buys you nothing but protects the lender.
• A smaller loan — borrowing less means a lower monthly payment and far less interest over 30 years.
• Instant equity — you start with a 20% cushion, which helps if home values dip.
• A stronger offer — in competitive markets, more money down can reassure a seller.

The catch is the size of the cheque. Twenty percent of a $400,000 home is $80,000 — before closing costs — which is out of reach for many first-time buyers. So the honest question is not "how do I hit 20%?" but "is 20% worth waiting for, or should I buy sooner with less?"

Low-down-payment options: 3%, 3.5%, and 0%

You do not need 20% to get a mortgage. Several mainstream programs are built for buyers with smaller savings:

• Conventional 3–5% down — programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible let qualified buyers put down as little as 3%. You'll pay PMI until you reach 20% equity, but it cancels.
• FHA — 3.5% down — government-backed loans for buyers with lower credit scores or thinner savings. They require an upfront and annual mortgage insurance premium (MIP), which often lasts the life of the loan.
• VA loans — 0% down — for eligible veterans, active-duty service members and some surviving spouses. No down payment and no monthly mortgage insurance, though there is a one-time funding fee.
• USDA loans — 0% down — for low-to-moderate-income buyers in eligible rural and suburban areas, with its own guarantee fee.

A smaller down payment gets you in the door sooner, but it raises your loan balance, your monthly payment, and — in most cases — adds mortgage insurance. That tradeoff is the heart of the decision.

The PMI tradeoff

Private mortgage insurance is the price of putting down less than 20% on a conventional loan. It typically costs somewhere between 0.3% and 1.5% of the loan amount per year, billed monthly, with the exact rate driven by your credit score and down payment. On a $300,000 loan, that's roughly $75 to $375 a month for nothing you keep.

The good news for conventional borrowers: PMI is temporary. You can request cancellation once your balance drops to 80% of the original value, and federal law requires automatic removal at 78%. FHA mortgage insurance is stickier — on most modern FHA loans it lasts the life of the loan unless you refinance into a conventional mortgage later. That difference is a key reason to compare an FHA loan against a low-down-payment conventional loan rather than assuming FHA is always cheapest.

Down payment vs home price: a quick reference

Here's what each common down payment percentage looks like in real dollars across a range of home prices. Use it to gut-check your savings goal before you go deeper with a calculator.

Home price	20% down	10% down	5% down	3.5% down (FHA)
$250,000	$50,000	$25,000	$12,500	$8,750
$350,000	$70,000	$35,000	$17,500	$12,250
$450,000	$90,000	$45,000	$22,500	$15,750
$550,000	$110,000	$55,000	$27,500	$19,250

Down payment only — closing costs and cash reserves are extra. Figures are illustrative; your required minimum depends on the loan program, lender and your credit profile.

Notice how the gap between 20% and 5% widens fast at higher prices: on a $450,000 home, it's the difference between saving $90,000 and $22,500. For many buyers, the lower number is the difference between buying this year and buying in five years.

Don't forget closing costs and reserves

The down payment is the headline, but it is not the whole bill. Two more cash needs catch first-time buyers off guard:

Closing costs (2–5% of the price)

These are the fees to finalize the loan and transfer the property: lender origination and underwriting fees, appraisal, title insurance, recording fees, and prepaid items like the first year of homeowners insurance and a few months of property taxes set aside in escrow. On a $400,000 home, expect roughly $8,000 to $20,000 due at closing. In some markets you can negotiate seller concessions to cover part of this, but you should plan to fund it yourself.

Cash reserves

Lenders for some loans want to see reserves — typically two to six months of mortgage payments left in the bank after closing. Even when not strictly required, draining your savings to the last dollar for a down payment is risky: a new home brings repairs, and you still need an emergency fund. A slightly smaller down payment that leaves you a cushion is often the wiser choice.

How the down payment changes your loan and monthly payment

Every extra dollar you put down is a dollar you don't borrow — so the down payment quietly drives your monthly cost in three ways: a smaller loan principal, the presence or absence of PMI, and less total interest paid over the life of the loan.

Consider a $400,000 home with a 30-year fixed loan at 7%, ignoring taxes and insurance for clarity:

Down payment	Cash down	Loan amount	Est. P&I / month	PMI?
3.5% (FHA)	$14,000	$386,000	~$2,568	Yes (MIP)
5%	$20,000	$380,000	~$2,528	Yes
10%	$40,000	$360,000	~$2,395	Yes
20%	$80,000	$320,000	~$2,129	No

Principal and interest only, estimated at a 7% 30-year fixed rate; excludes property tax, homeowners insurance and any PMI/MIP, which would raise the lower-down-payment rows further. For illustration — your rate and payment will differ.

The 20% buyer pays about $440 less per month in principal and interest than the 3.5% buyer — and that's before adding the PMI the low-down-payment buyers also owe. Over a few years, the lower payment and no-PMI savings add up to real money. But the 20% buyer also handed over $66,000 more in cash up front, money that is now locked in the house. Whether that's worth it depends on your savings, your timeline, and how that cash would otherwise work for you.

So how much should you actually save?

A practical target for most buyers: your chosen down payment + closing costs (2–5%) + at least three months of mortgage payments in reserve. If you're aiming for a $350,000 home with 10% down, that's roughly $35,000 + about $10,500 in closing costs + a reserve cushion — call it $50,000+ all-in, not the $35,000 the "10%" headline implies.

If 20% is achievable without wiping out your emergency fund, it's a strong, clean position. If it would take you years longer to reach, a low-down-payment loan that lets you buy now — and cancel PMI later as you build equity — is a perfectly legitimate strategy. The best down payment is the one that gets you into a home you can comfortably carry, with money left over for the surprises that come with owning it.

Frequently asked questions