Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
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How to Calculate Down Payments
What you'll learn: Everything you need to know about calculating down payments for a mortgage.
EXPECTED READ TIME: 5 MINUTES
January 26, 2024
For first-time homebuyers and seasoned homeowners, saving for a down payment takes time and careful consideration. It’s important to take a look at your budget and estimate your home down payment as you begin house hunting. That way, you are better prepared for the costs and what you can afford to put down on your new home.
The most common recommendation for a down payment on a home is 20%. Calculating down payment is fairly simple—you can use this this formula: down payment percentage times purchase price = total down payment. Here’s an example using a home priced at $300,000:
$300,000 X 0.2 = $60,000
Note that you will have to convert the down payment percent to a decimal for this calculation.
Why do lenders require a down payment?
Down payments are an important cost in the homebuying process because they reduce the risk lenders take on when providing your mortgage loan. Down payments prove to lenders that you are a reliable borrower who is intent on paying back your mortgage. Not only that, down payments also reduce the amount of money you need to borrow while decreasing the amount of interest and lowering your monthly mortgage payments.
How much should you put down on a house?
The total amount you should put down for a home varies depending on your unique situation. A typical down payment for a conventional loan is 20% of the home’s purchase price, but that number can feel out of reach to many homebuyers.
It can come as a relief to know that there are loan options on the market that require little to no down payment. For instance, some loan options, such as a Veterans Affairs (VA) loan, require little to no down payment. Federal Housing Administration (FHA) loans require as little as a 3.5% down payment, making them an attractive option for first-time homebuyers.
It is important to remember that a down payment is just one cost you will have to pay on closing day. You will also have to factor in appraisal and inspection fees, underwriting costs, and more. Typical closing costs on a home purchase are normally 2 to 5% of your total loan. As you work out your budget, it may be tempting to choose to put down less than 20%. However, opting to put down a larger amount offers some great advantages.
Large down payments versus small down payments
A home purchase is a personal affair, and the amount you decide for your down payment will depend on a number of factors. Before you commit to a down payment percent, here are some pros and cons to consider:
Advantages of putting down 20%:
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PRO: No PMI.
Private mortgage insurance (PMI) protects lenders if a borrower defaults on a home loan. However, if you opt to put down 20% or more on your home purchase, you can avoid paying PMI altogether.
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PRO: Lower monthly payments.
A larger down payment means you can borrow less money, which means you will benefit from lower monthly mortgage payments. This will leave you with more funds for repairs, upgrades, and other expenses.
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PRO: Better interest rates.
The higher your down payment, the more attractive you are to potential lenders making them more likely to offer you low interest rates. Even a one point drop in your rate can help you save thousands of dollars over the term of your loan.
Drawbacks of putting down 20%:
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CON: Takes more time to save up.
Saving for a down payment can take months, even years for most homebuyers. While it can be worth the wait, you may have to miss out on potential home opportunities if you decide to stick to a savings goal of 20%.
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CON: Less flexibility with your finances.
Choosing to put down 20% or more on a home may put a strain on your wallet depending on your current financial situation.
At the end of the day, the amount you decide to put down is up to you. Take your time calculating what you can afford and be sure to explore your loan options with lenders so you can better understand how your down payment percent will affect your overall costs.
SIMILAR ARTICLES
Mortgage Calculator - Know Your Options
Use PenFed’s free mortgage calculator and determine your monthly payment, including principal and interest. Calculate conventional, VA, and jumbo home loans.
Can I Afford to Buy a Home?
Find out if you're financially ready to buy a home. Use our affordability calculator to list your current income and bills and determine how much home you could afford.
Homebuying Process Step-by-Step
From planning and budgeting to signing on the dotted line, learn the steps of getting a mortgage and buying a home.
What Are the Different Types of Mortgages?
There are several different types of mortgages depending on your situation, credit score, income, amount of money needed, and other factors. See which home loan is best for you.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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