The down payment is the part of a house you buy outright, and it sets everything else: the size of the loan, the monthly payment, and whether the lender adds mortgage insurance. Enter a price and a percentage to see the amount, the loan, and the distance to the 20% line.
Someone is looking at a house price and deciding how much to put down, and wants to know the amount, the loan that results, and what the 20% threshold is worth in practice.
A down payment does three things at once, and only the first is obvious. It reduces the amount borrowed, which reduces the monthly payment and the total interest. It reduces the loan-to-value ratio, which is how a lender measures its risk and what determines the rate you are offered. And at 20% it usually removes mortgage insurance, which is an additional monthly cost on top of the payment itself.
That third effect is the one people underestimate. On a $400,000 house, a 10% down payment means borrowing $360,000 instead of $320,000 — an extra $40,000 of loan, which at 6.5% over thirty years is about $253 a month. But it also means the lender adds mortgage insurance, which is typically a few tenths of a percent of the loan each year, or roughly $100 to $200 a month on a loan this size.
So the true cost of the last 10% of the down payment is not just the $40,000. It is the $40,000 plus the insurance premium that goes with it, and the two together often make the smaller down payment more expensive than the arithmetic on the loan alone suggests.
Twenty percent is a convention rather than a law. It exists because lenders above 80% loan-to-value are taking more risk, and they charge for it in the form of mortgage insurance — a policy that protects the lender, not the borrower, if the loan goes bad. The borrower pays the premium and receives none of the benefit.
The line is not perfectly sharp. Some loan programmes are exempt: VA loans for eligible veterans generally do not carry mortgage insurance at any down payment, and some conventional programmes allow a single premium paid upfront instead of a monthly charge. Others have different thresholds entirely.
There is also a route back to it. On a conventional loan, once the balance falls to 80% of the original value, the borrower can generally ask for the insurance to be removed, and it must be removed automatically at 78% by law under the Homeowners Protection Act. On an FHA loan the rules are different and the insurance often lasts for the life of the loan — which is worth knowing before choosing that programme with a small down payment.
The case for a large down payment is a guaranteed return. Money put into a house avoids borrowing at the mortgage rate, and on a 6.5% loan that is a guaranteed 6.5% — better than most risk-free alternatives, and tax-free in effect.
The case against is liquidity and concentration. Money in a house cannot be spent in an emergency without borrowing it back, and a down payment already concentrates a household's savings in a single, illiquid, undiversified asset. A household that empties its savings to reach 20% has bought a slightly cheaper mortgage and lost its ability to absorb a bad year.
The usual answer sits in between: reach the 20% line if it can be done without leaving nothing behind, and stop there rather than paying down further while savings are thin. Below 20%, the mortgage insurance premium is the cost of the flexibility, and it is worth comparing against the alternative of waiting and saving more.
down payment = price × downPct ÷ 100 loan = price − down payment LTV = loan ÷ price × 100
The arithmetic is trivial; the 20% line is the part worth understanding. Lenders price risk by LTV, so the down payment does not just reduce the loan — it changes the terms of the loan that remains.
Twenty percent of $400,000 is $80,000, leaving a loan of $320,000 and a loan-to-value ratio of 80%. This is the conventional case: the loan is at the line where mortgage insurance usually stops, and the shortfall from that line is $0.
Halving the down payment to 10% gives $40,000 upfront and a loan of $360,000 — $40,000 more borrowed, and a loan-to-value ratio of 90%. The gap to the 20% line is $40,000, and below that line most US lenders add mortgage insurance, which is a monthly cost on top of the larger payment.
Five percent of $250,000 is $12,500, leaving $237,500 to borrow and a loan-to-value ratio of 95%. The shortfall from the 20% line is $37,500. At this level the mortgage insurance premium is at its highest, because the lender's exposure is at its largest.
Twenty percent is the conventional target, because it usually removes the mortgage insurance that lenders add above 80% loan-to-value. Below that, the trade is a larger loan plus an insurance premium against keeping more of your savings liquid. The right answer depends on how much of a cushion you would have left.
It is a policy that pays the lender if the borrower defaults. It protects the lender, not the borrower, but the borrower pays the premium — typically a few tenths of a percent of the loan each year. It usually applies above 80% loan-to-value on conventional loans and under different rules on FHA loans.
On a conventional loan, generally yes: once the balance reaches 80% of the original value you can usually request removal, and the lender must remove it automatically at 78% under the Homeowners Protection Act. FHA loans have different rules and the insurance often lasts for the life of the loan, which is worth knowing before choosing that programme.
No. Money put into a house avoids interest at the mortgage rate, which is a good guaranteed return, but it becomes illiquid and concentrates savings in one asset. A household that empties its savings to reach 20% has a cheaper mortgage and no ability to absorb a bad year.