On a $400,000 home, each 5 percentage points of down payment equals $20,000. The right amount is the one that leaves enough cash for closing, moving and the first repair after the keys are handed over.

How much should you put down on a house?

Start with the purchase price and calculate several dollar amounts, then compare the complete result. A down-payment percentage by itself does not show the monthly payment, mortgage insurance, interest cost or cash remaining after closing.

On a $400,000 home, 5% is $20,000, 10% is $40,000 and 20% is $80,000. The base loan amount would be $380,000, $360,000 or $320,000 before any financed program-specific amounts.

Common down-payment percentages compared

Program rules change, and available options differ by lender. Confirm current requirements with official program material and multiple lenders instead of treating these examples as approval criteria.

How down payment changes loan-to-value ratio

Loan-to-value ratio, or LTV, compares the loan amount with the property value used for underwriting.

If the purchase price and accepted property value are both $400,000, a $40,000 down payment produces a $360,000 base loan and a 90% LTV. If the appraisal comes in below the contract price, the transaction may require renegotiation, additional cash or a different structure because lenders generally do not treat the higher contract price as extra collateral value.

A lower LTV can affect pricing, mortgage-insurance requirements and risk assessment, but credit, debt-to-income ratio, occupancy, property type, loan purpose and other factors also matter.

Worked example: 10% versus 20% down

Run your own comparison in our mortgage payment calculator. Example PMI is not a program quote and does not model FHA, VA or USDA charges.

Down payment is only one part of cash to close

A safe plan separates at least four cash buckets:

1. Down payment: the equity contributed toward the purchase price.
2. Closing costs: lender charges, appraisal, title services, government recording or transfer charges and other transaction costs.
3. Prepaids and initial escrow: items such as prepaid interest, homeowners insurance and initial tax/insurance deposits.
4. After-closing reserves: money for moving, repairs, furnishings, maintenance and emergencies.

Read our closing-cost guide before deciding how much cash is available for the down payment. The CFPB recommends keeping an emergency cushion after closing. Spending every available dollar removes that cushion.

Where can down-payment money come from?

Acceptable sources depend on the loan program and lender documentation rules. They may include verified checking or savings funds, eligible gift funds, proceeds from selling assets, grants or down-payment assistance, and proceeds from another property sale. Large or unusual deposits may require documentation.

Gift funds

A lender may require a gift letter and evidence showing the transfer and donor’s source. A gift cannot secretly be an undisclosed loan. Relationship and contribution rules vary by program.

Down-payment assistance

Assistance can take the form of grants, forgivable loans, deferred-payment loans or repayable second mortgages. Eligibility may depend on income, location, first-time buyer definitions, education or occupancy. Ask how the assistance affects repayment, refinance, sale and total closing costs.

Questions to ask before choosing a percentage

• What are the interest rate, APR, points and lender credits at each down-payment level?
• What is the exact monthly and upfront mortgage-insurance cost?
• How much cash will remain after the final Closing Disclosure amount is paid?
• Will property taxes be reassessed after the purchase?
• What repairs or association assessments are likely soon?
• Would a slightly lower price create a healthier payment than a larger down payment?
• Are there price breaks at specific LTV thresholds?

Frequently asked questions

Do first-time buyers need 20% down?

No. Qualified borrowers may have lower-down-payment options. “First-time buyer” definitions and program rules vary, so check eligibility before acting.

Does a bigger down payment always get a lower rate?

Not always. LTV can influence pricing, but the result also depends on credit, loan type, occupancy, property and market conditions. Compare written Loan Estimates for the same scenario.

Can closing costs be included in the down payment?

No. The down payment and closing costs are distinct uses of cash, even though both affect cash to close. Seller or lender credits may offset eligible costs under applicable limits but generally do not replace the borrower’s required investment.

What happens if the appraisal is low?

A low appraisal can increase the resulting LTV. Options may include disputing supported errors, renegotiating the price, adding cash, changing the loan structure or ending the purchase if the contract permits.

Is zero down the same as no money needed?

No. Even a zero-down loan can involve closing costs, prepaids, inspections, deposits, moving expenses and reserves.

Keep building your plan

Worked examples were recalculated on September 9, 2026. The three source links below were checked the same day.

A household earning $10,000 a month before tax reaches $3,600 of total debt at 36%. If existing debts take $900, the arithmetic leaves $2,700 for housing. A $1,200 child-care bill is absent from that ratio, so the household may choose $2,400.

Build affordability from the monthly bill

1. Start with take-home cash flow. List reliable net income and the expenses that actually leave your account.
2. Choose a comfortable all-in housing limit. Include the full mortgage-related payment, not only principal and interest.
3. Reserve money for ownership costs. Maintenance, utilities, repairs and special assessments may not appear in a lender payment.
4. Protect savings goals. Emergency reserves, retirement contributions, health costs and near-term goals should survive the purchase.
5. Work backward to a price range. Test rates, down payments, taxes and insurance instead of using a single income multiple.

The 28/36 shortcut starts with gross income. On $10,000 a month, 28% is $2,800 for housing and 36% is $3,600 for total debt. The formula does not subtract a $1,200 child-care bill, payroll deductions or a personal savings target. Put those amounts into the household budget before choosing a price.

Debt-to-income ratio: useful, but not the whole answer

Debt-to-income ratio (DTI) compares recurring monthly debt obligations with gross monthly income.

Depending on the calculation and lender, included obligations may cover the proposed housing payment, auto loans, student loans, minimum credit-card payments, support obligations and other debts. Precise treatment varies by program and underwriting method.

You may hear a 28/36 rule: roughly 28% of gross income for housing and 36% for total debt. Treat it only as a planning rule of thumb, not a universal approval standard or a promise of affordability. Some loan decisions allow different ratios based on the whole file; a household can also qualify at a ratio that feels uncomfortable after taxes and non-debt expenses.

What belongs in the monthly housing number?

Our PITI and payment guide explains these components in detail.

Worked example: qualification math versus comfort

Convert a comfortable payment into a home-price range

Once you choose the all-in mortgage-related limit:

1. Subtract monthly property taxes.
2. Subtract homeowners insurance.
3. Subtract HOA dues.
4. Subtract estimated mortgage insurance if applicable.
5. The remainder is the maximum principal-and-interest payment for this planning scenario.
6. Use the rate and term to solve for the matching loan amount, then add the planned down payment.

This relationship is sensitive to rate and local taxes. A lower-tax property may support a different price at the same monthly limit. A larger down payment can reduce the loan but also reduce reserves. Test scenarios in our interactive mortgage calculator before choosing one price.

Worked price-range illustration

A different rate quote, property-tax bill, insurance premium or PMI amount changes the price. That is why online “salary to house price” multiples are weak planning tools.

Stress-test affordability before making an offer

• Income test: Could the payment survive a temporary reduction in variable pay or overtime?
• Tax and insurance test: What happens if both increase at renewal or reassessment?
• Repair test: Can you handle a deductible and a major system failure without revolving debt?
• HOA test: Is there room for a dues increase or special assessment?
• Rate test: If shopping an adjustable-rate loan, can the budget handle contractually possible increases?
• Cash test: After the down payment and closing costs, will adequate liquid reserves remain?
• Life test: Do child care, health, transportation, education and retirement goals still work?

Ways to improve affordability without stretching

• Consider a lower purchase price or a property with lower ongoing costs.
• Pay down expensive recurring debt when doing so does not erase reserves.
• Compare lenders using consistent Loan Estimate scenarios.
• Adjust the down payment only after modeling PMI, closing costs and remaining cash.
• Review multiple areas because property taxes, insurance and HOA dues can differ sharply.
• Avoid treating the longest available term as free affordability; check lifetime interest and your likely holding period in the amortization guide.

Frequently asked questions

How many times my salary can I afford?

No single multiple is reliable. Rates, debts, taxes, insurance, down payment, location and household expenses can make the same salary support very different prices.

Does DTI use gross or net income?

Lender DTI calculations generally use qualifying gross income, while a personal affordability budget should also study take-home cash flow after taxes, benefits and savings contributions.

Should I spend the full preapproval amount?

Not necessarily. Preapproval addresses conditional borrowing capacity, not your entire financial life. Choose the price that supports a resilient monthly plan.

How much should I budget for maintenance?

There is no perfect universal percentage. Consider the home’s age, roof, HVAC, plumbing, appliances, exterior, climate and inspection findings. Build both a monthly reserve and accessible emergency cash.

Can future rental income make a house affordable?

Only use income you can document and reasonably sustain. Lender treatment of rental income follows specific rules, while vacancy, repairs and management reduce the cash actually available.

Next steps

Worked examples were recalculated on September 9, 2026. The two CFPB links below were checked the same day.

A $360,000 mortgage at 6.50% for 30 years has about $2,275 in monthly principal and interest. Add $450 in property tax and $150 in homeowners insurance, and the estimated bill reaches $2,875 before maintenance or utilities.

What does PITI mean?

PITI stands for principal, interest, taxes and insurance. It is a useful way to discuss the recurring cost tied to a mortgage, but it is not automatically every cost of owning a home. Condo or homeowners association dues, maintenance, utilities, repairs and special assessments can sit outside PITI.

The Consumer Financial Protection Bureau explains that a mortgage servicer may collect taxes and homeowners insurance with the monthly payment and hold those funds in an escrow account. That is why the amount sent to the servicer is often higher than the scheduled principal-and-interest payment.

The parts of a mortgage payment

Principal: the debt you are repaying

Principal is the amount borrowed. A portion of each scheduled payment reduces the outstanding loan balance. On a standard fixed-rate, fully amortizing mortgage, the principal portion is usually small in the early years and grows over time as the interest portion declines.

Interest: the cost of borrowing

Interest is charged on the outstanding principal. The note rate helps determine the scheduled principal-and-interest payment. The annual percentage rate, or APR, is a broader disclosure measure that can reflect certain finance charges; it is not the number to enter as the mortgage rate in a basic payment formula.

Property taxes

Local governments assess property taxes. A servicer with an escrow account generally estimates the annual bill, divides it into monthly deposits and later pays the taxing authority. Tax bills can change because of reassessment, levy changes, exemptions, new construction or local rules. A seller’s current tax bill may not equal the buyer’s future bill.

Homeowners insurance

Homeowners insurance protects against covered property losses and includes liability coverage under the policy. The premium depends on the home, coverage, deductible, insurer and location-specific risks. Flood, earthquake or wind coverage may require separate policies. When insurance is escrowed, the monthly deposit can change after renewal.

Private mortgage insurance (PMI)

PMI protects the lender, not the homeowner, when a conventional loan meets the insurer’s coverage conditions. It often applies when a conventional buyer puts down less than 20%, but the price and cancellation rules depend on the loan. FHA mortgage insurance, USDA guarantee fees and the VA funding fee follow different program rules and should not be modeled as conventional PMI.

HOA or condo dues

HOA dues are paid to an association, not applied to the mortgage balance. Lenders may still include them when evaluating housing obligations. Confirm the regular dues, what they cover, the association’s financial condition, pending special assessments and whether an increase has been approved.

Worked example: from P&I to the total housing payment

Try different assumptions in our US mortgage calculator. Replace every example input with a lender quote, tax record, insurance quote and property-specific association information.

The fixed-payment formula

For a fixed-rate, fully amortizing loan, the monthly principal-and-interest payment can be estimated with:

• M = monthly principal and interest
• P = initial loan principal
• r = monthly interest rate
• n = total number of monthly payments

This formula does not calculate taxes, insurance, PMI, HOA dues, closing costs or future escrow changes. At a zero interest rate, principal and interest are simply P ÷ n.

Escrow, prepaid costs and mortgage insurance are different

Why can a fixed-rate mortgage payment change?

A fixed rate keeps the scheduled principal-and-interest portion stable, assuming the loan is not modified and payments are made as required. The total amount collected can still change when:

• property taxes rise or an exemption changes;
• the homeowners insurance premium renews at a different price;
• an escrow analysis finds a shortage or surplus;
• mortgage insurance begins, changes or ends under the loan’s rules;
• HOA dues or special assessments change outside the mortgage bill;
• a temporary buydown or other payment feature expires.

How to verify your real payment before closing

1. Use the projected-payments section of the Loan Estimate to see principal and interest, mortgage insurance and estimated escrow.
2. Request a property-specific insurance quote. The seller’s premium may not match the buyer’s quote.
3. Check the tax authority’s record and ask how a transfer or reassessment could affect the bill.
4. Read association budgets, reserve information and notices for current dues and assessments.
5. Compare the final Closing Disclosure with the most recent Loan Estimate and ask about unexplained changes.

Frequently asked questions

Is escrow part of PITI?

Escrow is the collection mechanism, while taxes and insurance are the underlying PITI costs. A borrower may pay taxes and insurance through escrow or, when permitted, directly to the biller.

Does every mortgage payment include PMI?

No. PMI may apply to some conventional loans. The loan type, down payment, equity position and program rules determine whether mortgage insurance or another program fee applies.

Are HOA dues included in a mortgage payment?

Usually the association bills HOA dues directly; the mortgage servicer does not collect them. They still belong in a complete monthly housing budget and may be considered during underwriting.

What is the difference between principal and escrow?

Principal reduces the mortgage debt. Escrow deposits are held to pay separate bills such as property taxes and homeowners insurance; they do not reduce the loan balance.

Can I remove PMI?

Some borrowers can request cancellation or receive automatic termination when federal and loan-specific conditions are met. The rules vary, so check your servicer’s written requirements and the CFPB’s PMI guidance before choosing a date.

How do you estimate a complete mortgage payment?

Calculate monthly principal and interest from the loan amount, note rate and term, then add one-twelfth of annual property taxes and homeowners insurance. Add monthly mortgage insurance and HOA or condo dues when they apply. Keep maintenance, utilities, repairs and special assessments in the household budget even when they are not collected by the mortgage servicer.

Use the payment in four related decisions

Payment examples were recalculated on September 9, 2026. The three CFPB links below were checked the same day.

On a $400,000 purchase, one worked example starts with a $40,000 down payment and $12,500 of costs and prepaids. After $11,000 of credits and deposits, the estimated cash to close is $41,500.

What are mortgage closing costs?

Closing costs are expenses required to create the loan, transfer and verify the property, establish insurance or escrow, record the transaction and complete settlement. They are not one fee paid to one company. Several independent parties may provide services.

People often use “closing costs” to mean every dollar due at closing, but that can be misleading. Your cash to close generally starts with the down payment, adds eligible closing costs and prepaids, then accounts for deposits, credits, adjustments and money already paid.

The main groups of buyer closing costs

Lender and loan charges

• origination, processing or underwriting charges;
• discount points paid for a specific rate structure;
• credit report, flood determination, tax service or verification fees where applicable;
• application or rate-lock-related charges disclosed for the loan.

Property and third-party services

• appraisal and possible appraisal-related services;
• pest, survey or inspection costs when required or chosen;
• title search, settlement/escrow services and lender’s title insurance;
• owner’s title insurance when selected or negotiated;
• attorney or notary services where customary or required.

Government and transfer charges

Recording fees, transfer taxes and similar charges depend on state and local law and the transaction. Contract terms or local custom may influence which party pays, but custom is not a guarantee.

Prepaids and initial escrow deposits

Prepaids cover timing-related expenses. They are separate from compensation for creating the loan. They may include per-diem interest, the first homeowners insurance premium and property-tax amounts. An initial escrow deposit funds the account the servicer will use for future tax and insurance bills.

Worked cash-to-close example

The example shows why multiplying the price by a generic “closing cost percentage” is incomplete. Credits, prepaid timing, tax prorations, deposits and the down payment can change the wire amount. Never rely on an email containing last-minute wiring instructions without independently verifying the destination through a trusted contact method because real-estate wire fraud is a known risk.

Loan Estimate versus Closing Disclosure

Loan Estimate

After a consumer submits the information that triggers an application under applicable rules, the Loan Estimate presents the proposed loan terms, projected payments and estimated closing costs. It is built for comparison: use the same loan amount, lock status and scenario when comparing lenders.

Closing Disclosure

The Closing Disclosure shows the final loan terms and closing figures. The CFPB says borrowers must receive it at least three business days before the scheduled closing for most covered mortgages. That period gives the borrower time to compare it with the Loan Estimate and ask questions. Certain important changes can trigger a new waiting period; confirm the rule with the settlement team for the specific transaction.

What to compare line by line

1. Loan amount, interest rate and whether the rate can change.
2. Monthly principal and interest, mortgage insurance and escrow.
3. Points, origination charges and lender credits.
4. Services the borrower could and could not shop for.
5. Title, government and other costs.
6. Prepaids, initial escrow and adjustments.
7. Cash to close and the destination for verified funds.

Points and lender credits: price the tradeoff

Points generally increase upfront cost in exchange for a different rate. Lender credits generally reduce upfront cost in exchange for a different rate or price. Neither is automatically good or bad.

If $3,000 of additional upfront cost reduces principal and interest by $60 per month, the simple break-even point is 50 months. This ignores taxes, time value of money, refinance or sale probability and other loan differences, so use it only as a first screen.

How to compare and potentially reduce closing costs

• Request Loan Estimates from multiple lenders for a consistent scenario and time window.
• Compare both the rate and the lender-cost/credit combination.
• Review the “services you can shop for” section and obtain allowed quotes.
• Ask whether a seller credit is permitted and useful for your loan; credits are subject to contract, program and contribution limits.
• Choose the closing date with awareness of prepaid-interest and tax timing, not merely to make one line smaller.
• Challenge duplicate, unexplained or incorrect charges before closing.
• Do not waive valuable inspection or title protections only to reduce a headline number without understanding the risk.

Frequently asked questions

Are closing costs included in the down payment?

No. They are separate parts of cash to close. A 10% down payment does not mean the buyer needs only 10% of the price in available funds.

Can closing costs be rolled into the mortgage?

Sometimes certain costs can be financed, more commonly in some refinance or program-specific situations, subject to loan-to-value and other rules. Increasing the balance can increase payment and lifetime interest.

Who pays title insurance?

Responsibility varies by product, state, contract and local practice. Lender’s and owner’s title policies protect different interests. Review both the contract and disclosures.

Are closing costs refundable if the loan does not close?

Some paid services may be nonrefundable once performed, such as an appraisal. Deposit and contract rights vary. Ask for written cancellation and refund terms before paying.

Why did cash to close change?

Common reasons include a changed down payment, credits, rate pricing, insurance premium, tax or HOA adjustments, prepaid-interest timing and corrections. Ask the lender and settlement agent to explain each change.

How are mortgage closing costs calculated?

There is no single closing-cost rate. Add the disclosed loan charges, third-party services, government charges, prepaids, initial escrow deposits and transaction adjustments, then subtract applicable lender or seller credits and deposits already paid. For the amount you must provide at settlement, include the down payment and rely on the cash-to-close line in the latest disclosure. A percentage of price is only an early planning check, not a substitute for the Loan Estimate or Closing Disclosure.

Use the closing number in the next calculation

For a monthly estimate, enter property-specific inputs in our mortgage calculator.

The cash-to-close example was recalculated on September 9, 2026. The three CFPB links below were checked the same day.

A $360,000 mortgage at 6.50% has $27,305 in scheduled principal and interest during its first 12 payments. About $4,024 reduces principal; about $23,282 is interest. The balance after payment 12 is about $355,976.

How mortgage amortization works

Each scheduled principal-and-interest payment covers the interest accrued for that period and applies the rest to principal. Interest is calculated from the outstanding balance, so reducing the balance leaves less principal on which future interest can accrue.

For a standard fixed-rate loan, the payment formula is:

• M is monthly principal and interest.
• P is the starting principal.
• r is the monthly interest rate.
• n is the total number of monthly payments.

For payment number k, the remaining scheduled balance can be estimated as:

These formulas assume a level rate, payments made on schedule and no extra principal. Taxes, insurance, PMI and HOA dues are separate from loan amortization; see our complete mortgage payment breakdown for those costs.

How to read an amortization schedule

Rounding can make a lender’s final line differ slightly from a hand calculation. Payment timing, per-diem interest, servicing conventions and adjustments can also create differences. Treat an online schedule as a planning model and use the lender or servicer schedule for account-specific figures.

Worked example: a $360,000 fixed-rate mortgage

These rounded figures explain a key point: paying for 15 years does not necessarily mean half the original balance is gone. Explore the exact year-by-year curve with the interactive graph in our mortgage calculator.

Amortization is not the same as equity

Scheduled principal repayment increases your ownership stake, but home equity is broader:

Market value can rise or fall. A home-equity loan, HELOC, unpaid liens, selling costs and market conditions can affect the amount an owner actually realizes. Do not equate the “principal paid” column with guaranteed spendable equity.

What extra principal payments can change

An additional principal payment reduces the balance ahead of schedule. If the servicer applies it correctly and the loan is not recast, the required principal-and-interest payment usually stays the same while the payoff date can move earlier and future interest can decline.

Before sending extra money

1. Confirm there is no relevant prepayment penalty and review the note.
2. Tell the servicer to apply the amount to principal, not merely to the next payment due.
3. Keep the regular payment current.
4. Check the following statement to verify the principal balance fell as expected.
5. Compare the guaranteed return from debt reduction with liquidity, emergency reserves and other priorities.

15-year versus 30-year amortization

The “best” term depends on the actual rate quotes, cash flow, savings, retirement goals, job stability and how long you expect to keep the loan. Compare complete Loan Estimates before deciding which term costs less for your case.

Common amortization mistakes

• Looking only at the payment: two loans can share a payment but have different balances, rates, terms or fees.
• Including escrow in principal: tax and insurance deposits do not reduce the mortgage balance.
• Assuming appreciation: an amortization table models debt, not future property value.
• Ignoring sale or refinance timing: lifetime interest is less relevant if the loan will end early, but transaction costs and the balance at exit matter.
• Sending “extra” without instructions: verify that the servicer applied it as intended.

Frequently asked questions

Why is so little principal paid at the beginning?

The balance is largest at the beginning, so that period’s interest is also larger. As scheduled principal lowers the balance, less interest accrues and more of the level payment becomes principal.

Does amortization include taxes and insurance?

No. Amortization describes repayment of loan principal and interest. Escrow deposits, mortgage insurance and association dues affect the total housing payment but do not amortize the loan.

Can an adjustable-rate mortgage have an amortization schedule?

Yes, but future rows depend on rate changes and the loan’s adjustment rules. A single fixed schedule cannot predict unknown future index values.

What is negative amortization?

Negative amortization occurs when a payment is insufficient to cover the interest due and unpaid interest is added to the balance under the loan terms. It is different from the standard fully amortizing example used here.

Does refinancing reset amortization?

A refinance replaces the old debt with a new loan and a new schedule. Extending the payoff horizon can reduce the payment but may increase total interest and costs, so compare the remaining cost with the new monthly amount.

How do you calculate a mortgage amortization schedule?

First calculate the scheduled monthly principal-and-interest payment with the fixed-payment formula. For each month, multiply the beginning balance by the monthly rate to find interest; subtract that interest from the scheduled payment to find principal; subtract the principal from the balance; then repeat. Keep full precision until display because rounding every monthly step can shift the final row.

Put the amortization schedule to work

The payment and balance examples were recalculated on September 9, 2026. The two CFPB links below were checked the same day.