What Counts Toward Your Cash at Closing
The down payment is the portion of the purchase price you pay from your own funds, wired one to three days before closing and credited on the settlement statement. Earnest money you submitted with your offer counts toward it — a $6,000 earnest deposit on a $400,000 contract with $80,000 down means you wire roughly $74,000 more at the closing table, assuming the deposit sits in escrow. Everything gets reconciled on the Closing Disclosure you receive three business days before signing.
Acceptable sources go beyond your checking account: proceeds from selling investments or a previous home, vested 401(k) loans (up to $50,000 or half the vested balance), IRA withdrawals with the first-time buyer exception, documented gift funds, and employer or state down payment assistance grants. Assistance programs commonly offer $5,000 to $15,000 as forgivable grants or zero-payment deferred second liens, usually tied to income limits and a first-time buyer definition that often means not having owned a home in three years.
What does not count toward the down payment still matters to underwriting. Lenders want to see that you did not borrow the funds from an undisclosed source, and many want two to six months of full housing payments left in reserves after closing. Seasoning rules typically require large non-payroll deposits to sit in your account for 60 days, or come with a paper trail, before they can be counted as yours.
Minimum Down Payments by Loan Program
Conventional loans start at 3% down through first-time buyer programs like Fannie Mae HomeReady, Freddie Mac Home Possible, and the HomeOne program, while the standard conventional minimum is 5%. On a $400,000 home that is $12,000 to $20,000. These low-down programs carry income caps or first-time buyer requirements, and anything under 20% carries PMI priced by your LTV band and credit score.
FHA requires 3.5% down with a 580 or higher credit score ($14,000 on $400,000) and 10% down for scores between 500 and 579, plus a 1.75% upfront mortgage insurance premium and annual MIP. VA loans require zero down for eligible veterans and service members using their full entitlement, and USDA loans offer zero down in eligible rural areas within income limits. Jumbo loans above conforming limits typically want 10% to 20% down with strong reserves.
Run the defaults through the calculator to see how close a modest savings balance gets you. A buyer with $30,000 saved pursuing an FHA loan on a $400,000 home needs about $26,000 in cash to close — $14,000 down plus $12,000 in closing costs at 3% — meaning they are ready today on that program, while the same buyer targeting 20% down on a conventional loan has a $62,000 gap and a multi-year savings plan ahead.
The 20 Percent Rule and What Actually Changes
Twenty percent down on a $400,000 home means $80,000, and it buys three concrete things: no PMI on a conventional loan, the best loan level pricing adjustment tier, and a smaller loan that costs less interest over time. None of that makes 20% a legal requirement. The median first-time home buyer finances with single-digit down payments, and loan programs are designed around that reality.
The honest trade-off is timing. Saving the last stretch from 12% to 20% on a $400,000 home means accumulating another $32,000, which takes 40 months at $800 per month. During those years, home prices can rise faster than your savings — a 4% annual appreciation rate lifts that $400,000 home by $16,000 per year — and the mortgage rate you eventually qualify for is not guaranteed to improve. A $253 monthly PMI bill that disappears at 20% equity is frequently the cheaper path compared with waiting.
Lenders price conventional loans in 5% LTV steps, so each threshold you cross — 95%, 90%, 85%, 80% — improves the pricing grid, often worth 0.125% to 0.375% on the rate. The loan structure matters too: an adjustable rate trades a lower fixed period payment for reset risk later, and the ARM mortgage calculator shows how payments move once the fixed period ends. Once you settle on a down payment percentage, the mortgage calculator turns the resulting loan amount into a full monthly payment with taxes and insurance.
Private Mortgage Insurance by LTV Band
PMI on conventional loans typically costs 0.3% to 1.5% of the loan balance per year, set by your LTV band and credit score; strong credit at 80% LTV pays the low end, thin credit at 97% LTV pays the high end. The calculator estimates it with LTV bands: about 1.0% of the loan per year above 95% LTV, 0.8% in the 90 to 95 band, 0.65% in the 85 to 90 band, and 0.5% in the 80 to 85 band. Treat the output as a planning number and get real quotes, because a 780 credit score can cut the premium nearly in half.
On a $400,000 home the bands work out to roughly $321.67 per month at 3.5% down (a $386,000 loan), $253.33 at 5% down, $195.00 at 10% down, and $141.67 at 15% down. FHA math differs: the 1.75% upfront premium can be financed into the loan, but annual MIP of roughly 0.55% to 0.65% sticks around for the life of the loan unless you put 10% or more down, which shortens it to 11 years.
PMI is removable, and that changes the calculus. You can request cancellation once your balance hits 80% of the original value, using either the scheduled amortization or a new appraisal that documents market-driven equity, and lenders must auto-cancel at 78% of the original value on the schedule. Once you hold 20% equity, refinancing options also open up — the cash out refinance calculator prices what tapping that equity later would look like.
Closing Costs Ride Alongside the Down Payment
Closing costs run about 2% to 5% of the purchase price — the calculator defaults to 3%, or $12,000 on a $400,000 home. The pile includes the origination charge, the appraisal ($500 to $800 typically), title insurance, escrow and settlement fees, recording fees, and prepaid items: several months of property taxes and a year of homeowners insurance paid into your new escrow account at closing.
Three levers reduce the cash needed. Seller credits, negotiated in buyer-friendly markets, can cover several percent of the price — a 2% credit on $400,000 is $8,000. Lender credits accept a slightly higher rate in exchange for the lender paying part of your closing costs, which makes sense when cash is tight and you expect to hold the loan for years. Title insurance shopping is mandatory in some states and negotiable in others, and the difference on a $400,000 sale can be several hundred dollars.
Cash to close is the number to plan around: down payment plus closing costs, minus credits, plus or minus prepaid adjustments. That is the figure the calculator targets with its savings timeline — $92,000 in the default scenario, not the $80,000 headline down payment. First-time buyers are routinely surprised by the escrow prepaids, which show up on page two of the Closing Disclosure and are easy to miss while staring at the down payment line.
Building the Savings Timeline
The timeline math is simple: take cash to close, subtract what you have saved, and divide by what you set aside monthly. In the default scenario, a $92,000 target with $30,000 in the bank leaves a $62,000 gap — 78 months at $800 per month, 42 months at $1,500, and 25 months at $2,500. Every extra $700 per month of savings cuts three years off the plan, which is usually easier to find than most people expect once the goal is concrete.
Structure the plan instead of relying on leftovers. A dedicated high-yield savings account kept separate from spending money, funded by automatic transfer on payday, converts a vague intention into a line item; the budget calculator helps find the monthly figure your income actually supports. Keep the fund boring — cash in an FDIC-insured high-yield account at 4% beats a brokerage account with a due date attached, since a 20% drawdown in the year you plan to buy sets the timeline back more than the extra return helps.
Compounding does quiet work on a multi-year fund. Roughly $62,000 accumulating at $800 per month for six and a half years in a 4% account generates somewhere around $8,000 to $9,000 in interest along the way — effectively a year of contributions you did not have to make. The compound interest calculator runs that growth curve for your exact balance and contribution rate.
How Down Payment Size Changes Lifetime Interest
A smaller down payment means a bigger loan, and interest scales with the balance. At 6.5% over 30 years, a $320,000 loan (20% down on $400,000) costs $2,022.62 per month and $408,142 in total interest, while a $388,000 loan (3% down) costs $2,452.42 per month and $494,873 in total interest. The 3% buyer pays $429.80 more every month and roughly $86,731 more in interest across the loan's life.
PMI stacks on top of that payment gap while it lasts. The FHA buyer with a $386,000 loan pays $2,439.78 in principal and interest plus about $321.67 in mortgage insurance — $2,761.45 total against the 20%-down buyer's $2,022.62, a difference of $738.83 per month during the PMI years. That gap narrows and ends once equity reaches 20%, which is why the comparison belongs in months rather than decades when you weigh the decision.
Two tools extend the analysis. The amortization calculator shows exactly when your balance crosses each LTV threshold so you can date your PMI cancellation. Making one extra payment per year through a biweekly schedule shortens a 30-year loan by roughly four to six years — the biweekly mortgage payment calculator prices that — and when you collect final loan estimates, compare them with the APR calculator, since fees folded into APR can flip which offer is actually cheaper.
Down Payment Versus Emergency Fund and Other Goals
The down payment is one claim on your cash, and it rarely deserves all of it. Lenders frequently want two to six months of housing payments left in reserves after closing, and the first year of ownership reliably produces expenses the inspection missed: a $900 water heater, a $1,200 HVAC service, movers, and the immediate furniture needs of a larger space. Draining every account to hit 20% down trades a $250 PMI bill for a line of credit card debt at 22%, which is a bad trade in every scenario where the furnace fails.
The monthly payment still has to fit your income, and a bigger down payment only changes its size within limits. The standard underwriting test caps total housing costs near 28% of gross income and total debt near 36% — the 28/36 rule calculator checks your numbers against both limits. A buyer who passes the ratio test with 5% down does not need 20% to qualify; they need reserves and a timeline for building equity, which scheduled amortization and appreciation deliver without extra cash.
Leverage cuts both ways, and it is worth pricing honestly. Five percent down on a $400,000 home ties up $20,000; if the home appreciates 4% in year one, the $16,000 equity gain is an 80% return on that cash — the appreciation calculator runs the compounding over a multi-year hold. The same leverage magnifies a down year, and transaction costs of roughly 8% to 10% on a sale eat several years of appreciation, so the math only pays off when the holding period is real.