How Much Should You Put Down on a House?

The traditional advice is to put 20 percent down on a house. That advice is not wrong, but it is also not required, and treating it as a hard rule can delay homeownership for years without a corresponding financial benefit. This guide walks through what the down payment actually controls and how to decide the right amount for your situation.

What the down payment controls

The down payment is the portion of the purchase price you pay in cash at closing. The rest is financed with a mortgage. Three things move with the down payment: the loan amount (and therefore the monthly payment), the interest rate offered (larger down payments sometimes qualify for slightly better rates), and whether private mortgage insurance is required.

PMI: the sub-20 percent cost

Conventional loans typically require PMI when you put less than 20 percent down. PMI protects the lender if you default and typically costs 0.5 to 1.5 percent of the loan amount per year, paid monthly. On a $300,000 loan, that is roughly $125 to $375 per month. PMI is not permanent: you can request removal once your equity reaches 20 percent, and it automatically ends at 22 percent equity by federal law.

FHA loans have their own mortgage insurance (MIP) that works differently and often lasts the life of the loan. If you use an FHA loan to buy in with a small down payment, plan to refinance to a conventional loan once you have built enough equity, or accept MIP as part of the ongoing cost.

The case for 20 percent down

A 20 percent down payment eliminates PMI, gives you immediate equity that protects you if home values fall, reduces the monthly payment, and lowers total interest paid over the life of the loan. For someone with the cash reserves to do it comfortably (with an emergency fund intact), it is a sound choice.

The case for less than 20 percent

Waiting until you have 20 percent saved can take years, during which you are paying rent and potentially missing home-price appreciation. If you have stable income, a solid emergency fund, and a mortgage payment that fits comfortably in your budget even with PMI, buying with 5 or 10 percent down and eliminating PMI later can make more sense than waiting.

It also matters what else you could do with the extra cash. Putting an additional $40,000 into a down payment locks that money into home equity, which is illiquid. Investing it in tax-advantaged retirement accounts often produces higher expected long-term returns than the mortgage interest and PMI you would avoid.

A practical framework

Three checks: keep a full emergency fund untouched after closing; keep the total monthly housing cost (mortgage, insurance, taxes, PMI) at or below about 28 percent of gross income; and put down whatever is left in cash beyond those two commitments. If that lands you at 8 percent down, that is fine. If it lands you at 25 percent, that is also fine.