Step 13 of 48 Phase 2: Assess Your Buying Power
2.6 Calculating Down Payment
Figure out how much to put down on your home purchase.
Down Payment Options
| Percentage | On $300K Home | Considerations |
|---|---|---|
| 3% | $9,000 | Minimum for conventional |
| 3.5% | $10,500 | FHA minimum |
| 10% | $30,000 | Lower PMI |
| 20% | $60,000 | No PMI required |
Pro Tips
- Larger down payments mean lower monthly payments
- Consider PMI costs when deciding
- Keep emergency fund separate
- Look into down payment assistance programs
Common Mistakes to Avoid
- Draining your entire emergency fund for the down payment - keep 3-6 months of expenses in reserve
- Forgetting that you also need cash for closing costs (2-5% of the home price)
- Not researching down payment assistance programs available in your state or city
- Accepting gift money without documenting it properly - lenders require a gift letter
Real-World Example
The Garcias's Story: The Garcias want to buy a $350,000 home. They have $30,000 saved and need to figure out the best down payment strategy.
- Option A: Put 3% down ($10,500) - keeps $19,500 for closing costs and emergency fund
- Option B: Put 10% down ($35,000) - would drain all savings
- Closing costs estimated at $10,000 (about 3% of purchase price)
- Emergency fund goal: $12,000 (3 months of expenses)
- They chose Option A: $10,500 down + $10,000 closing costs = $20,500 needed
- Remaining savings: $9,500 toward emergency fund
Outcome: The Garcias accepted a higher monthly payment with PMI ($120/month) to maintain their financial safety net. They planned to request PMI removal once they reached 20% equity through payments and home appreciation.