Finance Calc App
mortgage

Down Payment

A down payment is the upfront cash you pay toward a home purchase. It equals the purchase price minus the loan amount. Most conventional loans require 3–20%; putting 20% down avoids private mortgage insurance (PMI).

Formula
Down payment = Purchase price − Loan amount
Example

On a $400,000 home with a $360,000 mortgage, the down payment is $40,000 (10%). Monthly PMI at 0.8% would add ~$240/month until 20% equity is reached.

The down payment is the single largest upfront cost in buying a home. It signals financial stability to lenders and directly determines your loan-to-value ratio (LTV). A higher down payment means a smaller loan, lower monthly payments, and often a better interest rate.

Putting down less than 20% on a conventional loan triggers private mortgage insurance (PMI), which typically costs 0.5–1.5% of the loan per year. PMI is cancelled automatically once your equity reaches 20% of the original purchase price.

First-time buyer programs (FHA, USDA, VA, and many state programs) allow down payments of 0–3.5%. The trade-off is upfront mortgage insurance premiums and, in some cases, higher rates.

Put this into practice with our free calculator:

Open calculator →

Related terms

Loan-to-Value Ratio (LTV)
The loan-to-value (LTV) ratio is the mortgage amount divided by the property's appraised value, expressed as a percentage. An LTV above 80% typically requires private mortgage insurance (PMI) in the US.
Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is a premium charged by lenders when a borrower puts less than 20% down on a conventional loan. PMI protects the lender — not the borrower — against default. It typically costs 0.5–1.5% of the loan balance annually.
Mortgage Payment
A mortgage payment is the fixed monthly amount owed to a lender, covering principal and interest (P&I). It may also include escrow for property tax and homeowners insurance (PITI).
Amortization
Amortization is the process of paying off a loan through scheduled, equal payments that cover both principal and interest. Early payments are mostly interest; later payments are mostly principal.

Frequently asked questions

What is Down Payment?
A down payment is the upfront cash you pay toward a home purchase. It equals the purchase price minus the loan amount. Most conventional loans require 3–20%; putting 20% down avoids private mortgage insurance (PMI).
What is the Down Payment formula?
The formula is: Down payment = Purchase price − Loan amount — Example: On a $400,000 home with a $360,000 mortgage, the down payment is $40,000 (10%). Monthly PMI at 0.8% would add ~$240/month until 20% equity is reached.