A larger down payment can reduce borrowing and may avoid conventional PMI. A smaller down payment can preserve cash. Compare the full housing payment and money left after closing rather than treating 20% as the right answer for every household.
Start with the cash you can actually use
Separate savings available for the transaction from retirement accounts, restricted gifts, taxes owed, and money needed to run a business. The account balance on a statement is not automatically the amount you should spend. List moving costs and known work on the home before deciding how much is available for a down payment.
For California purchases, get a property-specific tax and insurance estimate. The California cost guide explains why the seller’s current bill may be a poor budget. A bigger down payment does not protect against an insurance increase or a repair after moving.
Price the actual loan options
Ask for otherwise comparable written options at the down payments you can support. Keep the property, loan term, rate-lock period, and assumed closing date consistent. Record lender charges, credits, PMI where applicable, and the resulting cash to close. Do not assume the same rate applies at every loan-to-value ratio.
The low-down-payment conventional guide is one starting point. Eligible borrowers may also compare VA or FHA financing. Their program charges and eligibility rules differ from conventional PMI.
Compare liquidity with future debt
Down payment money becomes equity rather than a transaction fee. That matters when comparing total cost: a $20,000 additional down payment is not the same as paying $20,000 in lender charges. It reduces the amount borrowed but also reduces cash available outside the home.
Keep three separate columns: nonrefundable transaction charges, equity contributed, and liquid cash retained. Then compare projected debt at the same future date. Avoid counting the retained cash as both a down payment and an emergency fund.
Build a plan for the smaller-down-payment option
If you retain more cash, give it a job. Decide how much is reserved for repairs, a move, or income interruptions. If the extra cash would simply fund a higher purchase price or new spending, the intended safety cushion may disappear.
Review PMI cancellation versus refinancing before assuming insurance will vanish after future appreciation. Neither appreciation nor a later refinance is guaranteed.
A cash-reserve comparison
For a hypothetical $500,000 purchase, 10% down is $50,000 and 20% down is $100,000. With $125,000 available and identical assumed $15,000 transaction costs, cash remaining would be $60,000 versus $10,000. Starting base loans would be $450,000 versus $400,000. This isolates the down-payment choice; actual pricing, insurance, and costs would need separate quotes.
Bring these details to a review
- Available cash after moving, repairs, and other commitments.
- Written pricing at each down payment, with applicable mortgage insurance.
- A reserve target you can explain and a timeline for keeping the loan.
Common questions
Is 20% required to buy a home?
Not for every program. Eligibility, property, and lender requirements determine the available options.
Can I use retained cash to pay principal later?
Potentially. Check prepayment terms and how principal payments are applied. A principal payment does not automatically lower the required monthly payment.
Continue with the relevant guides
Discuss your scenario ↗Official and primary sources
Sources checked October 28, 2026. Agency rules and a lender’s own product descriptions are different sources; lender examples do not establish availability through Aaron. Examples are original hypothetical illustrations, not client results. Actual eligibility, pricing, costs, and terms require review.