Down Payment Calculator
The deposit is only part of what you need at closing. Closing costs typically add another two to five percent of the price, and they catch people out because they arrive as cash on the day. Both are included here.
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Why twenty percent is the reference point
At twenty percent equity, private mortgage insurance is not required. Below it, PMI is charged monthly and protects the lender rather than you. It can be removed later once equity reaches the threshold, but until then it is money that buys you nothing.
Twenty percent also roughly offsets the transaction costs of selling, which means you are not immediately underwater if you need to move.
Smaller deposits are legitimate, with a cost
FHA loans allow 3.5 percent, and several conventional programmes go to 3 to 5 percent. Waiting years to reach twenty percent while prices and rents rise is not obviously better than buying sooner and paying PMI for a while. The trade is real and depends on your market; do not treat twenty percent as a rule.
Closing costs are the forgotten number
Loan origination, appraisal, title insurance, escrow, recording, inspection. Together they commonly run two to five percent of the price, payable in cash at closing on top of the deposit. Some can be negotiated onto the seller or rolled into the loan, but assume you will need them.
Keep the emergency fund separate
Emptying every account into a deposit leaves nothing for the repairs that arrive shortly after moving in. The cash you need is the deposit, plus closing costs, plus a buffer that is not part of either.
Frequently asked questions
How much do I need for a down payment?
Twenty percent avoids PMI, but conventional loans go as low as 3 percent and FHA to 3.5 percent. Add two to five percent for closing costs whichever route you take.
Is PMI worth avoiding?
It costs roughly half to one percent of the loan a year and buys you nothing. Whether waiting to avoid it is worth it depends on how fast prices are moving in your market compared with how fast you can save.
Can I use gift money?
Most loan programmes allow gifted funds from family, usually with a signed letter confirming it is not a loan. Rules vary by programme, so check before relying on it.
Do closing costs have to be paid in cash?
Usually yes, though some can be rolled into the loan or covered by seller concessions. Budget for paying them in cash and treat any reduction as a bonus.