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How much should you put down on a house?

The higher your down payment, the lower your monthly mortgage payment

Many people ask just how much they should put down when buying a home. It helps to understand what your down payment is, how it affects your home loan, and what your options are.

  • This is the money you put down, upfront, to purchase a home in conjunction with taking out a mortgage loan to cover the remaining purchase price. While most lenders are looking for a down payment of 20% of the purchase price, you can buy a home with as little as 3% down.
    • HomeReady® mortgage by Fannie Mae addresses common financial challenges and offers expanded eligibility guidelines that include a 3% down payment option. Now, first-time and repeat home-buyers can purchase a home with a down payment as low as 3% of the purchase price. Find out if you qualify for the Fannie Mae HomeReady program.

If you can make a larger down payment, it may be to your advantage. 
Here are 3 reasons why:

  1. You could get a lower interest rate. Banks and lenders typically offer more favorable interest rates when your loan-to-value (LTV) ratio is lower. What is loan-to-value? It's about how much mortgage you have in relation to how much your property is worth. An increase in your down payment lowers your LTV ratio and lowers the lender's risk. Keep in mind that lower interest rates can mean great savings in the short- and long-term. 

  2. You'll lower your monthly mortgage payment. The higher your down payment, the lower your payment each month. That's because the total amount you need to borrow is smaller.  

  3. You won't need any mortgage insurance. Private mortgage insurance (PMI) is typically only required if you put less than 20 percent of the purchase price down when buying a home. It protects the lender if the event you stop paying or default on your mortgage at some point.

Consider, too, that by making a larger down payment upfront, you'll have less to pay over time, and could even pay off your mortgage sooner especially considering that lower monthly payments might enable you to make extra payments toward the principal.

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