How much should you put down on a house?

Mar 16, 2017

Determining how much money to put down is a major step in the home buying process and will likely be your largest up-front cost. A smart down payment percentage varies depending on a variety of factors, including the type of loan, how long you plan to be in the house and your interest rate. 

Let’s start with the basics.

What is a down payment? 

A down payment is the amount of cash you invest in your new home at the time of purchase. For example, if your new home costs $250,000 and you want to put 20% down, you would need $50,000 in cash. 

Photo of a household budget

When should I put 20% (or more) down?

Putting 20% down has been the long-standing gold standard of purchasing a home. 20% is a significant investment in your home and gives you a sizeable amount of equity as a homeowner. One benefit? A larger down payment avoids you, the buyer, from having to obtain mortgage insurance. This amount is often ideal for more financially established buyers or those with a larger cash or savings reserve. Some pros and cons of a 20% down payment:

Pros:
  • Best interest rates
  • NO mortgage insurance premiums required (saving you money each month)
Cons:
  • Requires more funds from borrower
  • Takes longer to save to purchase a home

What about putting less than 20% down?

Putting 20% down on a home can be a chunk of change and is not ideal for everyone – especially for young couples or first-time home buyers. Fortunately for those folks, many lenders offer loans that require a smaller down payment. Some pros and cons:

Pros:

  • Higher interest rates, fees (This is because these loans carry a higher risk)
  • Mortgage insurance premiums paid by the borrower
Cons:
  • Higher interest rates, fees (This is because these loans carry a higher risk)
  • Mortgage insurance premiums paid by the borrower

Does the down payment have to come from my own funds?

The down payment can come from several different sources, including:

  • The borrower’s own funds/savings/investments
  • Gift funds provided by borrower’s family
  • Down payment assistance programs
  • Other (e.g. seller contributions or seller contract or carry back financing, etc.)

Depending on the lender, funds for down payments may be able to come from different sources, but you should always check with your mortgage lender if you are using alternative sources for your down payment. 

If you’re thinking about buying or selling your home, we’re here to help. We’ve been specializing in helping people achieve their home ownership dreams for over 100 years. To find out more, contact one of our neighborhood branch managers or call us at 800-324-9375.