Should You Put 20% Down or Keep More Cash?

If you are saving to buy a home, you may feel pressure to reach a 20% down payment before applying for a mortgage. A larger down payment can reduce the amount you borrow, lower your monthly principal and interest payment, and generally help you avoid private mortgage insurance (PMI) on a conventional mortgage.

However, putting every available dollar into your home can leave you financially stretched after closing. Homeownership comes with expenses beyond the mortgage, including repairs, property taxes, insurance, utilities, and unexpected emergencies.

The right choice depends on more than the down payment percentage. You need to consider your monthly budget, savings, loan options, and the amount of cash you will have left after buying the home.

A 20% down payment offers several potential financial advantages, especially if you are taking out a conventional mortgage.

1. You Can Usually Avoid PMI on a Conventional Mortgage

Private mortgage insurance is generally required on a conventional mortgage when your down payment is below 20% of the home’s purchase price. PMI protects the lender against certain losses if you stop making payments; it does not protect you from foreclosure.

Putting 20% down generally allows you to avoid this additional cost on a conventional purchase mortgage. That can reduce your monthly housing payment and the overall cost of borrowing.

However, mortgage insurance rules differ by loan program. FHA and USDA loans have their own mortgage insurance requirements, so putting 20% down does not automatically eliminate every type of mortgage insurance.

Read our guide to how down payment size affects your mortgage rate to learn why the amount you put down can also affect your loan terms.

2. You Borrow Less and May Pay Less Interest

A larger down payment reduces your mortgage balance. With a lower balance, you generally pay less principal and interest each month and less interest over the life of the loan, assuming the same interest rate and loan term.

For example, on a $400,000 home, a 20% down payment is $80,000, leaving a $320,000 mortgage before any financed costs. With a 10% down payment of $40,000, you would borrow $360,000.

The smaller loan balance can make your monthly payment more manageable. Use our Mortgage Payment Calculator to compare payments at different down payment levels.

3. You Start With More Home Equity

A 20% down payment gives you a larger initial ownership stake in your property. This can provide a cushion if home values decline, although it does not eliminate the risk of losing equity.

Building equity can also help when you eventually sell or refinance. Still, home equity is not the same as cash in a bank account. Accessing it later may require selling your home, qualifying for a loan, or paying borrowing costs.

Reaching a 20% down payment is not always worth sacrificing your financial flexibility. Keeping some money available after closing can be just as important as reducing your mortgage balance.

1. You Have Money for Emergencies

Your financial situation can change after buying a home. You might face a job loss, an unexpected medical bill, a car repair, or a temporary reduction in income.

If almost all your savings go toward the down payment, you may need to rely on credit cards or other borrowing to cover an emergency. That additional debt can put pressure on your monthly budget.

The Consumer Financial Protection Bureau suggests setting aside an emergency cushion, with three to six months of expenses offered as a useful planning guideline. The appropriate amount depends on your income stability, household obligations, and other resources.

2. You Can Cover Closing Costs and Moving Expenses

Your down payment is not the only money you need to buy a home. You may also have to pay lender fees, appraisal charges, title-related costs, prepaid taxes, insurance, and moving expenses.

The CFPB estimates that closing costs commonly range from 2% to 5% of the purchase price, excluding the down payment, although actual costs vary.

For a $400,000 home, that could mean roughly $8,000 to $20,000 in closing costs. If you plan to put down $80,000, remember that the total cash required could be substantially higher.

Our guide to down payment versus closing costs explains how to budget for both.

3. You Can Pay for Repairs and Initial Home Expenses

Even a home that looks move-in ready may need maintenance, appliances, furniture, or repairs. Heating and cooling systems, plumbing, roofs, and other components can become expensive when something goes wrong.

Keeping cash available gives you more flexibility to handle these expenses without immediately taking on additional debt.

For more guidance, see how much down payment you really need before deciding how much of your savings to commit.

Imagine you are buying a $400,000 home and have $90,000 available for your down payment and other upfront expenses. The table below illustrates two possible approaches.

Option A gives you a smaller mortgage and generally avoids PMI on a conventional loan. However, you would have only $10,000 remaining before paying closing costs and other expenses.

Option B leaves you with $50,000 before those expenses, providing a larger cash reserve. In exchange, you would borrow an additional $40,000 and may have to pay PMI on a conventional mortgage.

Neither option is automatically better. The important question is whether the monthly savings from putting 20% down are worth the reduction in available cash.

A 20% down payment may be worth considering when:

• You can make the payment without using your emergency savings.
• You have enough money left for closing costs, moving, and initial repairs.
• Avoiding conventional PMI meaningfully improves the monthly payment.
• You expect to keep the home and want to reduce your borrowing costs.
• Your other financial priorities, such as high-interest debt and retirement savings, are adequately accounted for.

You should still compare actual mortgage offers. A lender may offer different interest rates, fees, or PMI costs depending on your credit profile, loan amount, and down payment.

A smaller down payment may be more practical when:

• A 20% down payment would use nearly all your savings.
• Your income is variable or your job situation is uncertain.
• You expect significant moving costs or repairs.
• You need to preserve money for other important financial obligations.
• You qualify for a competitive low-down-payment mortgage or assistance program.

You do not necessarily have to wait until you have saved 20% to buy a home. Some conventional mortgages permit eligible buyers to put down as little as 3%, while FHA loans can allow 3.5% down for qualifying borrowers. Eligibility, lender requirements, and mortgage insurance costs vary.

Explore whether you can buy a house with less than 20% down before assuming you must keep saving.

Before choosing a down payment, compare the complete cost of each option rather than focusing only on PMI or the monthly mortgage payment.

1. Calculate your available cash. Start with your savings and subtract money reserved for emergencies and other essential goals.
2. Estimate upfront costs. Include the down payment, closing costs, moving expenses, and likely initial repairs.
3. Compare monthly payments. Ask lenders for estimates at different down payment levels, including principal, interest, taxes, insurance, and mortgage insurance where applicable.
4. Review the total loan cost. Compare interest rates, lender fees, mortgage insurance, and how long you expect to keep the loan.
5. Keep a realistic cash reserve. Consider your essential monthly expenses, job stability, dependents, and the age and condition of the property.

You can use our Down Payment Calculator to estimate your upfront contribution and compare different scenarios.

For a more complete estimate of ongoing housing costs, try the Mortgage Calculator With Taxes and Insurance.

Putting 20% down can lower your mortgage balance, reduce interest costs, and generally eliminate PMI on a conventional purchase mortgage. However, keeping more cash can protect you against emergencies, closing costs, repairs, and other expenses that come with homeownership.

Rather than treating 20% as a mandatory target, compare the monthly savings with the cash you would have left after closing. A financially sound decision should make your mortgage affordable while preserving enough flexibility to handle the unexpected.