The 20% down payment recommendation can make homeownership feel unrealistic – but the good news is that very few lenders require 20% at closing. That said, making a down payment that equals 20% of a home's purchase price offers advantages.
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.
The average first-time buyer pays about 6% of the home price for their down payment, while repeat buyers put down 17%, according to data from the National Association of REALTORS® in late 2022. The median home sale price in the U.S. was $416,100 as of Q2 in 2023.
Given a choice, some buyers may choose to put down 20 percent, but others may not. "Especially as rates remain historically low with a buoyant stock market, there are many people who want to take advantage of getting maximum financing to be able to put their assets to work elsewhere," explains Alvarez.
In general, you should strive to make a down payment of at least 20% of a new car's purchase price. For used cars, try for at least 10% down. If you can't afford the recommended amount, put down as much as you can without draining your savings or emergency funds.
If you put a large chunk of it into your down payment, you may not have as much available in case of emergencies. You may also need to be more careful with your monthly budgeting. In some cases, this can be very inconvenient. The money cannot be invested elsewhere.
Luckily, there are grants and loan programs that can help. For example, every state has multiple down payment assistance programs (DPAs). These programs, often funded by state and local governments and nonprofits, offer money to make homeownership more accessible for lower-income or disadvantaged home buyers.
A 20% down payment has long been considered a golden down payment for homeowners. After all, it shows lenders that you're committed to the loan for the long term, proves your financial status, and generally benefits the borrower by lowering payments and reducing interest liability on a loan.
Calculating the Pros and Cons
Homebuyers who put at least 20% down don't have to pay PMI, and they'll save on interest over the life of the loan. Putting 20% down is likely not in your best interest if it would leave you in a compromised financial position with no financial cushion.
One rule of thumb for a down payment on a car is at least 20% of the car's price for new cars and 10% for used — and more if you can afford it.
A lower down payment could mean you're able to buy a home months (or years) earlier. Saving up 20% of the purchase price of a home —at today's high prices — can take a long time for many of us. If you spend less on the down payment, you'll free up funds to cover the myriad of other transaction-related expenses.
Many loan types and lenders require 5 percent down or more. You can often save money if you put down at least 10 percent of the home price, and you'll save the most if you put down at least 20 percent.
Putting down 20% on a home purchase can reduce your monthly payment, eliminate private mortgage insurance and possibly give you a lower interest rate.
If I Make $70,000 A Year What Mortgage Can I Afford? You can afford a home price up to $285,000 with a mortgage of $279,838. This assumes a 3.5% down FHA loan at 7%, a base loan amount of $275,025 plus the FHA upfront mortgage insurance premium of 1.75%, low debts, good credit, and a total debt-to-income ratio of 50%.
$1,400 per month qualifies to borrow a loan amount of $204,913; add your $20,000 down payment to this, and you can purchase a home of $224,913.
Despite misconceptions, most homeowners don't put 20% down
Despite this, the majority (59%) of current homeowners who have or have had a mortgage say their down payments were less than 20% of the home's purchase price, while just 29% put down 20% or more.
You can often secure better rates with a larger down payment, but you also need to understand how much you can afford. Paying too little for your down payment might cost more over time, while paying too much may drain your savings. A lender will look at your down payment and determine which mortgage is best.
If you do buy a home for less than 20% down, expect to pay private mortgage insurance (PMI) as part of your total monthly payment. PMI is insurance that benefits your lender (not you) by protecting them in the event you default on your mortgage payments.
FHA loans require as little as 3.5 percent, and VA loans and USDA loans have no down payment requirement at all. Most homeowners don't put 20 percent down. In 2022, the median down payment among homebuyers was 13 percent, according to the National Association of Realtors (NAR).
Yes. Even if you don't ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.
If you hope to make a home purchase in 5 years, that would mean you'd want to set aside $1,433 a month if you were starting from $0, assuming no returns. Do some back-of-the-envelope math to come up with your goal. Be sure to account for any existing funds you have earmarked for a down payment.
With home prices just over $100,000, plus affordable property taxes and homeowner's insurance, you may be able to purchase a home making well under $40,000 per year.
How much is a down payment on a 200K house? A 20% down payment on a 200K house is $40,000. A 5% down payment is $10,000, and a 3.5% is $7,000. Talk with various lenders to see what you might qualify for.
A larger down payment can score you a shorter loan term, reducing the amount of time you have to pay off the loan. Yes, this means you'll pay more cash up front so you can save in the long run.