How much down payment do you need? (3%, 10%, 20% compared)

How much down payment do you need? The legal minimum is 3% on a conventional loan and 3.5% on an FHA loan. The financial answer is different, because every dollar you do not put down is a dollar you borrow at today’s rates — plus, below 20%, a dollar you pay to insure. I ran a $400,000 home at 3%, 10% and 20% down, using the 7.40% average 30-year fixed rate from Freddie Mac’s survey for the week of October 15, 2026, so you can see exactly what each step up buys you.

Three down payments, one house

All loans are 30-year fixed at 7.40%. PMI is priced illustratively at 0.80% of the loan per year at 3% down and 0.50% at 10% down — inside Freddie Mac’s published range of $30–$70 a month per $100,000 borrowed. Your actual PMI quote depends on your credit score and insurer. Property taxes and homeowners insurance are excluded; they do not change with your down payment.

What the extra cash actually buys

Read the table by steps. Going from 3% to 10% costs $28,000 more at closing and saves $302.53 a month plus $41,797.70 of interest over the term. Going from 10% to 20% costs $40,000 more and saves $426.95 a month plus $59,704.34 of interest — and it deletes PMI entirely rather than just shrinking it. Cumulatively, the 20% buyer hands over $68,000 more on day one and pays $729.48 less every month, $101,502.04 less interest in total, and not a cent of mortgage insurance.

There is a second, quieter effect: lenders price loans in loan-to-value bands, so crossing from 90% to 80% borrowing can also improve the rate you are quoted, not just the payment arithmetic. I held the rate flat at 7.40% in the table so the comparison isolates the down payment itself — in live quotes, the 20% column often looks better still.

The PMI tail is longer than you think

Most buyers focus on PMI’s monthly price and ignore its lifespan. At 3% down, scheduled payments alone do not bring the balance down to 80% of the home’s value until month 145 — just over 12 years. If the premium stayed at its starting $258.67 and you cancelled the moment you were eligible, you would still have paid about $37,507 in PMI. At 10% down the wait is 105 months and the bill about $15,750.

You are not helpless against that timeline. Under the Homeowners Protection Act you can ask your servicer to cancel PMI once your balance reaches 80% of the original value — including because of extra payments you made. On the 3% loan above, adding just $100 a month to principal pulls the 80% date forward to month 118, roughly 27 months sooner, and saves about $6,984 of premiums. Many servicers also allow cancellation based on a new appraisal showing your home has gained value, under investor guidelines rather than the Act itself — worth asking about in appreciating markets.

When the smaller down payment is the right call

• You would otherwise empty your reserves. See the warning above — liquidity is worth more than a lower payment in year one.
• You carry more expensive debt. Keeping $20,000 to clear a 24% credit card beats saving 7.40% mortgage interest with it, every time.
• You plan to stay put. If you will be in the home seven years or more, buying now at 10% down can beat waiting years to save 20% while prices move — though this cuts both ways if prices fall.
• The home needs work. A house with a tired roof bought at 10% down, with cash left to fix it, beats the same house at 20% down and no repair budget.

Closing costs are not the down payment

One budgeting error I see constantly: treating the down payment as the whole cash bill. On top of it sit closing costs — lender fees, appraisal, title insurance, prepaid taxes and insurance — which commonly run 2% to 5% of the home’s price. On a $400,000 purchase that is another $8,000 to $20,000 at the table, whatever down payment you chose. So the true cash comparison is not $12,000 vs $80,000; it is more like $20,000–$32,000 vs $88,000–$100,000 once closing costs are in. This is also why the jump from 10% to 20% is harder than it looks on paper: the extra $40,000 has to exist alongside your closing money and your reserves, not instead of them. When I compare down payments for real, I write down all three numbers — down payment, estimated closing costs, and the reserve I refuse to touch — and only then decide which column of the table I can actually afford.

My rule of thumb

If you can reach 20% and still hold three to six months of expenses in reserve, do it — no other move cuts the cost of the loan this much. Whichever down payment calculator you use to test the options — a house down payment calculator is the same tool wearing a friendlier name — run all three columns before you decide, not just the minimum you can get away with. If 20% would empty your accounts, 10% is the sweet spot: PMI roughly halves compared with 3% down, and it ends years sooner. Below 10%, run the FHA comparison too, because FHA’s insurance pricing does not punish a lower credit score the way PMI does.

Sources: Freddie Mac Primary Mortgage Market Survey, week of October 15, 2026 (30-year fixed-rate average 7.40%) and Freddie Mac’s PMI cost estimate ($30–$70 per month per $100,000 borrowed); Consumer Financial Protection Bureau guidance on down payments, reserves and PMI cancellation under the Homeowners Protection Act. All payments and totals recomputed cent by cent; PMI figures are illustrative estimates.