How to determine your down payment
Quick insights
- Your down payment depends on your loan type, monthly budget, DTI and how much you want to pay upfront versus over time.
- Using tools like a mortgage affordability calculator can help you estimate a comfortable down payment and monthly mortgage payment.
- Factoring in closing costs, PMI and your goals after you move in may help you choose a down payment that aligns with your financial plan.
Congratulations on your decision to buy a home! But what happens next? An important part of the homebuying process is determining your down payment.
Whether you’re a first-time buyer or you're looking for your next home, buying a house may sometimes seem complicated. But finding out how much you can put down on a house can save you time and money. Keep reading for a breakdown of what a down payment is and how to find out how much you can afford:
What is a down payment?
A down payment is the money you pay at closing toward the cost of your new home; it’s the difference between your mortgage amount and your purchase price. Down payments are expressed as a percentage, rather than a dollar amount. You may have heard people say things like "He put 20% down on his house." That means someone paid 20% of the cost of their home at closing and borrowed the other 80% from their lender.
Considerations to determine your down payment
Choosing a down payment amount depends on your overall homebuying budget, including your monthly mortgage payment, closing costs and upfront expenses. Your down payment may also influence key areas of your mortgage, such as your debt-to-income ratio (DTI), loan size and long-term affordability. This can be especially helpful for first-time homebuyers creating a financial plan for their first home purchase.
Key factors to guide your down payment decision
- Loan type: Different loan programs, such as conventional loans, FHA loans or VA loans, have varying minimum down payment guidelines and credit considerations for first-time homebuyers.
- Monthly budget and DTI: Your down payment may affect your DTI and monthly mortgage, which can play a crucial role in qualifying for a home loan and maintaining a budget you’re comfortable with.
- Closing costs: In addition to your down payment, closing costs are due up front and they can include mortgage lender fees, third-party services and prepaid expenses.
- Private mortgage insurance: Some loan products may require private mortgage insurance (PMI) if the down payment is below a certain percentage of the purchase price, which could increase your monthly payment.
- Savings and cash reserves: It may help to consider how much your down payment aligns with your broader financial picture, such as emergency savings or future home repairs.
- Long-term home goals: Your intended timeline in the home may influence whether you choose a larger or smaller down payment.
How to calculate your down payment
To estimate a down payment, multiply the purchase price of the home by the percentage you plan to put down. For example:
- 10% down on a $300,000 home = $30,000
- 10% down on a $400,000 home = $40,000
- 10% down on a $500,000 home = $50,000
Once you determine a target down payment, you can review how it may impact your loan amount, estimated monthly mortgage payment, DTI and expected closing costs.
Down payment assistance programs
Some first-time homebuyers may qualify for down payment assistance programs offered by state or local agencies. These programs typically have different eligibility requirements, which may include income limits, homebuyer education or minimum credit standards.
Benefits of a larger vs. smaller down payment
- Larger down payment: May help lower your monthly mortgage payment, reduce total interest paid over time or avoid PMI, depending on the loan program.
- Smaller down payment: May help a first-time homebuyer purchase a home sooner and keep more funds available for moving expenses, savings or closing costs.
How is a down payment paid?
A down payment is usually paid at closing as part of your total funds to close, along with any required closing costs. The payment is usually sent to the closing agent, such as the title company or attorney. Homebuyers generally pay the down payment on closing day using a wire transfer or cashier’s check (personal checks and cash are generally not accepted). Accepted sources for down payment funds may include checking or savings accounts, investment funds (stocks, bonds), eligible gift funds or approved down payment assistance programs, subject to lender documentation and verification.
Your loan provider will issue a Closing Disclosure before closing, detailing your down payment, loan amount, closing costs and total funds to close. Reviewing your budget and using tools, such as a mortgage affordability calculator may help you estimate a comfortable down payment and monthly mortgage payment before you get to the closing table.
Start searching
Looking for a new home will be easier and less stressful when you’ve done your homework to see how much you can spend on a down payment.
If you have questions or could use some additional guidance, consider contacting a Chase Home Lending Advisor.
Once you've determined how much of a down payment you can make, you'll be better equipped to hit the ground running in your home search. The homebuying process will be easier, and you’ll have a good view of your financial health. Happy house hunting!
