How Much Should You Put Down on a House?

Whether you're buying a house for the first time or the fifth, deciding how much money to put down isn't easy. While 20% is a good rule of thumb, there's no one-size-fits-all figure.

How much to put down on a house depends on the monthly payment you can afford, the cash you have in reserve and your plans for the home. If you expect to buy soon, here is what you need to know.

How Much Down Payment for a House Is Best?

There's no right amount to put down on a home, but there are some guidelines to consider.

"A 20% down payment is still highly recommended because mortgage insurance is not required with 20% down," says Randall Yates, founder and CEO of The Lenders Network, an online mortgage marketplace. "The best interest rates are also given to borrowers with higher down payments."

2019 Profile of Home Buyers and Sellers from the National Association of Realtors." data-reactid="16">But many buyers put down much less. The median home down payment is 12% for all homebuyers and 6% for first-time homebuyers, according to the 2019 Profile of Home Buyers and Sellers from the National Association of Realtors.

That said, many mortgage lenders offer conventional loans with a down payment as low as 3%.

first-time homebuyer and government-backed mortgage programs allow you to qualify with no down payment." data-reactid="18">What's more, some first-time homebuyer and government-backed mortgage programs allow you to qualify with no down payment.

As a result, the buyer is left to decide how much down payment is right. Your financial situation and goals for your home can guide you rather than rules of thumb or lender minimums.

How to Decide How Much to Put Down on a House

There are several factors to think about to choose the right down payment amount. These include:

The monthly mortgage payment you can afford. The more money you put down, the lower the loan amount -- and your monthly payments -- will be. Because mortgage loans are typically so large, you will likely need to put down a lot to make a big difference.

If you have flexibility with how much you can put down, run some numbers to see the difference in your monthly payment and what's best for your budget.

Take this example looking at 3%, 5% and 10% down payments. If you put 3% down on a $250,000 home with a 30-year term and 4.5% fixed interest rate, your monthly payment for principal and interest would be $1,229.

With a 5% down payment, your monthly payment would drop by only $26. But if you increase it to 10%, you would pay $89 less per month than you would with 3% down, which can make a bigger difference over time.

Private mortgage insurance. It's not just the principal and interest that affect you, though. If you have a conventional loan, you could also be on the hook for private mortgage insurance, or PMI, unless you put down at least 20%." data-reactid="27">Private mortgage insurance. It's not just the principal and interest that affect you, though. If you have a conventional loan, you could also be on the hook for private mortgage insurance, or PMI, unless you put down at least 20%.

PMI is designed to protect the lender if you can no longer make your monthly payments. If your loan-to-value ratio -- the loan amount divided by the value of the property -- is too high, the lender could lose money in foreclosure, even after selling the home.

2017 Mortgage Insurance Data at a Glance report. Once your loan-to-value ratio, or LTV, reaches 80%, the risk is low enough that PMI is no longer required." data-reactid="29">PMI can cost between 0.55% and 2.25% of the original loan amount each year, according to the Urban Institute 2017 Mortgage Insurance Data at a Glance report. Once your loan-to-value ratio, or LTV, reaches 80%, the risk is low enough that PMI is no longer required.

If you can't afford a 20% down payment, PMI may be a given. And on some government-backed loans, mortgage insurance is required regardless of how much you put down. But if you can reasonably afford to avoid PMI, you may want to make a larger down payment.

Of course, you can get rid of PMI after you close on the loan if you get to the point where your LTV is 80% or lower.

"The bank will send an appraiser out, and if they evaluate the home and you have at least 20% equity," says Joelle Spear, a certified financial planner with Canby Financial Advisors in Massachusetts, "then they will simply remove (the PMI) from your account."

But the lower your down payment, the longer it will take to get to this point.

Interest rate. The more money you can put down, the less risk you pose to the lender. As a result, lenders may be willing to offer you a lower interest rate.

On the flip side, loans with low or no down payments are more accessible, but they can be more expensive overall.

"When a lender is financing 100% of the purchase price, they're obviously taking on greater risk," Yates says. "To offset that increased risk, lenders charge higher fees and interest rates."

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