The down payment is the cash you pay upfront toward the purchase price. It is the single biggest lever you control over your monthly payment and your total cost, because every dollar you put down is a dollar you do not borrow — and do not pay interest on for years.
What the down payment actually does
- Reduces the loan amount, which lowers the monthly principal-and-interest payment.
- Reduces total interest, because interest is charged on a smaller balance for the whole term.
- Affects whether you pay PMI — private mortgage insurance — which usually applies below 20% down.
- Can influence the interest rate a lender offers, since a lower loan-to-value ratio is less risky to the lender.
A down payment comparison
| Down payment | Loan amount | Monthly P&I | Est. PMI/mo | Monthly total |
|---|---|---|---|---|
| 5% ($17,500) | $332,500 | $2,101.63 | $221.67 | $2,323.29 |
| 10% ($35,000) | $315,000 | $1,991.01 | $210.00 | $2,201.01 |
| 20% ($70,000) | $280,000 | $1,769.79 | $0 | $1,769.79 |
Moving from 5% to 20% down on this example lowers the monthly payment by roughly $553 — partly from the smaller loan, partly from removing PMI. Over 30 years, the interest savings alone are substantial.
The 20% threshold and PMI
Twenty percent down is the traditional benchmark because it is the point at which conventional loans typically no longer require PMI. PMI protects the lender, not you, and usually adds $100–$300 a month to your payment when your loan-to-value ratio is above 80%. You can usually request cancellation once you reach 80% LTV, and it ends automatically at 78% on many conventional loans.
Is 20% down always the right goal?
Not always. Waiting years to save 20% can mean missing out on price appreciation and rent savings, and some loan programs allow much lower down payments. The right amount depends on your savings, your monthly budget, the loan program, and how long you plan to stay. The key is to understand the full cost — including PMI — of a smaller down payment, not just the upfront cash.
Down payment vs. closing costs
The down payment is separate from closing costs. Closing costs — lender fees, appraisal, title insurance, prepaids — typically add another 2–5% of the price due at signing. Budget for both, because they are paid from the same pool of cash on closing day.
See How PMI Affects Your Payment