The Truth About Putting 20% Down on a House

A 20 percent down payment can reduce borrowing costs and may eliminate private mortgage insurance on a conventional loan, but it is not automatically the best choice for every homebuyer.

The right down payment depends on what happens to your cash after closing, how much you can comfortably afford each month and the type of mortgage you choose.

1. A 20 Percent Down Payment Can Eliminate PMI

The biggest practical benefit of putting 20% down on a conventional mortgage involves private mortgage insurance, or PMI.

PMI protects the lender when a borrower has less than 20% equity in the home. With a 20% down payment, the loan-to-value ratio drops to 80%, so PMI typically isn’t required on a conventional loan.

That can reduce your monthly housing cost.

For example, on a $400,000 home, 20% means putting $80,000 down and borrowing $320,000. A buyer putting 10% down would put up $40,000 and borrow $360,000, potentially with PMI added to the monthly payment.

You can read more about the concept of a down payment before comparing mortgage options.

2. A Larger Down Payment Reduces the Loan

A larger down payment also means a smaller mortgage.

Suppose you buy a $500,000 house. With 20% down, your mortgage starts at $400,000. With 10% down, you borrow $450,000.

That $50,000 difference affects more than the initial loan balance. A smaller mortgage generally means lower monthly principal-and-interest payments and less interest paid over the life of the loan.

Your actual savings depend on the mortgage rate, loan term and other costs.

3. Putting 20 Percent Down Can Drain Savings

This part often gets overlooked.

Putting $100,000 into a $500,000 house doesn’t mean you only need $100,000 in savings. Buyers also need to account for closing costs, moving expenses, repairs, furniture, maintenance, an emergency fund, and recurring ownership costs such as property taxes.

The Consumer Financial Protection Bureau recommends considering other savings goals, moving expenses, renovations, and an emergency cushion before deciding how much cash to put into the home.

A homeowner with 20% equity but almost no cash in the bank could have a harder time handling an unexpected roof repair, job loss or major household expense.

4. You May Not Need 20 Percent Down

The 20% figure can sound like a requirement, but it isn’t.

Certain conventional mortgages can allow down payments as low as 3% for qualified borrowers. FHA loans can require 3.5%, while eligible VA and USDA borrowers may qualify for loans with no down payment.

The tradeoff can include PMI or other mortgage insurance, a larger loan balance and potentially higher monthly payments.

So the question isn’t simply, “Can I reach 20%?”

A better question might be, “What does reaching 20% leave me with?”

5. A Smaller Down Payment Can Be a Middle Ground

You don’t necessarily have to choose between 5% and 20%.

A 10% or 15% down payment can reduce the amount you borrow while leaving more cash available than a 20% contribution would.

The CFPB notes that lenders often evaluate down payments in 5% increments, meaning moving from 8% to 10%, for example, may produce different loan pricing than simply being “close” to 10%.

This makes it worth comparing several scenarios rather than assuming 20% automatically wins.

6. Compare Mortgage Rates and Total Costs

The size of your down payment can affect mortgage pricing. A larger down payment may help you receive a lower interest rate, although the exact impact depends on the lender, loan type, credit profile and other factors.

That means the comparison shouldn’t stop at PMI.

Ask a lender to show the monthly payment and total loan costs at 5%, 10%, 15% and 20% down. Seeing the numbers side by side can make the tradeoff much clearer.

Is a 20 Percent Down Payment Right for You?

A 20 percent down payment can make sense when you have plenty of savings left after closing and want a smaller mortgage without PMI.

But reaching 20% shouldn’t become a goal that drains every dollar you’ve saved.

For one buyer, putting $80,000 down on a $400,000 house could create a comfortable mortgage payment. For another, putting down $60,000 and keeping $20,000 available for emergencies could provide more financial breathing room.

The smartest down payment isn’t necessarily the largest one you can afford. It’s the amount that leaves you with a manageable mortgage and enough cash to handle life after you get the keys.

For a broader look at how mortgages work, see this Bankrate guide to down payments.