Is a Large Down Payment Always Best? Exploring the Pros and Cons

Key takeaways

• A 20% down payment is not mandatory. Many buyers—especially first-time buyers—put down far less, depending on the loan program and their financial situation.
• A larger down payment reduces your loan amount, which can lower monthly payments, decrease total interest paid over time, and potentially eliminate private mortgage insurance (PMI).
  
• Putting more money down lowers your loan-to-value (LTV) ratio, which may help you qualify for better interest rates, stronger loan terms, and a more competitive offer.
• The trade-off is liquidity: tying up too much cash in your home can limit your emergency savings, delay your purchase, or reduce flexibility for other financial needs.

The house you’ve been picturing is within reach, but one important question comes first: How much should you put down? Many homebuyers assume they need to put down 20%, while others ask whether 10%—or even less—could be enough. The right amount depends on your financial situation, your timeline, and your comfort level with monthly payments. In many cases, the best down payment isn’t the biggest one—it’s the one that supports your overall financial stability.

A recent Redfin report found that the typical homebuyer put down 15.2% of the purchase price in December 2025, down from 16.7% a year earlier. This reinforces that while some buyers still aim for 20%, many are purchasing homes with significantly less upfront.

So how much should you put down? And what are the real advantages of making a larger down payment? Read on to find out. 

What is a down payment?

A down payment is the money you pay up front when you buy a home. It’s your initial investment, and it covers the portion of the purchase price that your mortgage doesn’t.

It’s usually expressed as a percentage of the home’s price—for example, 3%, 10%, or 20%. That amount becomes your immediate equity in the property.

Putting more money down can lower your mortgage balance, which may reduce your monthly payment and the total interest you pay over time. It also lowers your loan-to-value (LTV) ratio—meaning you’re borrowing a smaller share of the home’s value.

From a lender’s perspective, that makes the loan less risky. And for you, a lower LTV can open the door to better loan terms and, in some cases, help you avoid paying private mortgage insurance (PMI).

Pros of a large down payment on a house:

1. Lower monthly payments: You’ll be borrowing less overall, and that directly translates to your monthly mortgage payments being noticeably lower. Think of it this way: the less money you have to take out as a loan, the smaller the principal amount that your bank calculates your payments on. This means more breathing room in your monthly budget, which can be a huge relief.

Example: Typically, for every additional $1,000 you put down, you can expect your monthly payment to decrease by approximately $6 to $10. 

For instance, if you have a $300,000 loan at a 6.5% interest rate over 30 years, putting an extra $1,000 towards your down payment could reduce your monthly bill by about $7. This might seem like a small amount, but these savings add up significantly over the life of your loan.

2. Reduced total interest paid: By borrowing less, you’ll pay less interest over the life of the loan, saving you a significant amount of money in the long run.  Consider a scenario where you’re deciding between a 5% down payment and a 20% down payment on a $300,000 home.

With a 5% down payment, you’d be borrowing $285,000. With a 20% down payment, you’d only need to borrow $240,000. This is because interest is calculated on the remaining principal balance, so a smaller principal means less interest charged each month, and thus, less interest paid overall. 

3. Increased equity: A large down payment gives you more immediate ownership (equity) in your home, which can be helpful for future decisions like selling or taking out a home equity loan.

4. Avoid private mortgage insurance (PMI): With a conventional loan, a down payment of 20% or more typically allows you to avoid paying PMI, a monthly fee that protects the lender and increases your monthly payment.

5. Potential for better loan terms and interest rates: Lenders often see borrowers who make larger down payments as less risky. This can improve your chances of loan approval and help you qualify for more favorable terms, including a lower interest rate.

6. Stronger offer: In a competitive housing market, a larger down payment can make your offer more attractive to sellers and increase your chances of having your offer accepted. 

Cons of a large down payment:

1. Reduced liquidity: While a large down payment offers many benefits, it’s vital to consider the trade-offs. Tying up a substantial amount of cash in your down payment significantly reduces your liquidity.
This can limit your ability to handle unexpected expenses or pursue other investment opportunities that might arise. Recent data shows that 49% of buyers used savings for their home purchase, down from 54% the year prior—suggesting some buyers are becoming more cautious about fully tapping their liquid assets.

2. Opportunity cost: The money you use for a large down payment could potentially earn a higher return if invested elsewhere, like in the stock market.

3. Delayed homeownership: Saving for a large down payment can take time, potentially delaying your entry into the housing market. If property values in your desired area are rising, the home you could afford today might be significantly more expensive by the time you’ve saved up that larger down payment. You could find yourself chasing an ever-higher target, potentially negating some of the savings you’re diligently accumulating.

4. Market risk: If the value of your home decreases, a large down payment means you could lose a portion of your initial investment. Imagine putting down 20% or even 30% on a home, only for the market to dip sharply. In such a scenario, the equity you thought you had built could quickly erode, leaving you “underwater”—owing more on your mortgage than your home is worth. Essentially, the more cash you tie up upfront, the more you stand to lose if the market turns sour.

Tips to save for a down payment on a house

Saving for a mortgage down payment is a significant financial undertaking, but with a strategic approach, it’s an achievable goal. Here are some key tips to help you get there:

Tips	Action
Set a Clear Goal and Timeline	Research Home Prices: Understand average costs in your desired area to estimate your needed down payment needed (e.g., 3-20% of home price) and factor in 2-5% for closing costs. Calculate Your Target: Divide your total down payment goal by your savings timeline to determine monthly savings needed.
Create and Stick to a Detailed Budget	Track Your Spending: Use apps or spreadsheets to see where your money goes and identify areas for cuts. Identify “Wants” vs. “Needs”: Prioritize essential spending and reduce discretionary costs.  The 50/30/20 Rule: Allocate 50% of after-tax income to needs, 30% to wants, and 20% to savings/debt.
Automate Your Savings	Separate Account: Open a dedicated high-yield savings account for your down payment to earn interest and prevent impulsive spending. Automatic Transfers: Schedule regular transfers from your checking account to your savings account on payday.
Reduce Expenses	Shop for Better Rates: Compare quotes for insurance (car, renter’s, health), cable, internet, and cell phone plans. Refinance Debt: Consider refinancing high-interest credit cards or student loans to free up monthly cash.
Explore Down Payment Assistance Programs	First-Time Homebuyer Programs: Look into state, county, and local grants or low-interest loans. Employer Assistance: Check if your employer offers down payment assistance as a benefit. Gift Funds: Family contributions are allowed with a “gift letter” from the lender.

Frequently asked questions about down payments

1. Is a 20% down payment on a home mandatory?

While a 20% down payment has long been considered the traditional benchmark in real estate, it is not universally required to purchase a home. Many loan programs, such as FHA, VA, USDA, and even some conventional options, allow for significantly lower initial capital contributions. However, opting for a 20% down payment offers a range of substantial financial advantages and can strategically position buyers more favorably.

2. Can you buy a house with no money down?

Yes. Certain loan programs, like VA loans (for eligible veterans and service members) and USDA loans (for properties in eligible rural areas), allow you to purchase a home with 0% down. Some credit unions and specific lender programs may also offer low or no-down payment options.

3. When do you pay the down payment on a house?

Your down payment is typically paid at the closing of your home purchase. Any earnest money you provide when making your offer will usually be credited towards this total at closing. You’ll work with the title or escrow company to finalize the payment via wire transfer or cashier’s check on closing day.

4. Do you need a down payment when refinancing?

No, you generally do not need a down payment when refinancing a mortgage. You’re not buying a new home; you’re replacing your existing loan. Lenders will instead assess your home equity and creditworthiness. However, you will still typically need to cover closing costs associated with the refinance, though sometimes these can be rolled into the new loan.

Next steps

The best way to decide how much to put down is to compare scenarios. Use Redfin’s Affordability Calculator to estimate what you can comfortably spend.

You can also try our Mortgage Calculator to see how different down payment amounts affect your monthly payment.

If you’re ready to move forward, get connected with a Redfin real estate agent who can guide you through the process from start to finish.

 

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