A down payment is the initial cash portion you pay when buying a home, car, or other large purchase. The remainder is financed through a loan.
Common Down Payment Amounts
- Home: 3–20% of purchase price (20% avoids PMI)
- Car: 10–20% recommended
- FHA loans: As low as 3.5%
- VA loans: 0% down for eligible veterans
Why a Larger Down Payment Helps
A bigger down payment means a smaller loan, lower monthly payments, less total interest paid, and often a better interest rate. Putting 20% down on a home eliminates Private Mortgage Insurance (PMI).
How Down Payment Size Changes Your Payment
On a $400,000 home at 7% for 30 years: a 5% down payment ($20,000) means financing $380,000 — about $2,528/month in principal and interest, plus PMI. A 20% down payment ($80,000) finances $320,000 — about $2,129/month with no PMI. The larger down payment saves roughly $400/month and eliminates a mandatory insurance cost.
Down Payment Assistance Programs
Many U.S. states and cities offer down payment assistance grants or forgivable second loans for first-time buyers, often layered on top of FHA (3.5% down) or conventional 3%-down programs. Eligibility usually depends on income limits and completing a homebuyer education course.