Most lenders require a minimum deposit of 5–10% of the purchase price, but 20% is the threshold that unlocks the best rates and avoids private mortgage insurance (PMI) — which can add $100–300+ per month to your costs.
Minimum vs. recommended deposit
- 3–5%: Available through government-backed programs (FHA in the US, Help to Buy in the UK). Requires mortgage insurance.
- 10%: Typically the entry point for conventional mortgages in the UK. Better rate access than 5%.
- 20%: The threshold that eliminates PMI/LMI in most markets and unlocks the best interest rates.
- 25%+: Premium rates from most lenders; demonstrates strong financial stability.
What PMI actually costs you
Private Mortgage Insurance (US) or Lenders Mortgage Insurance (Australia) typically costs 0.5–1.5% of the loan value per year. On a $380,000 loan, that's $1,900–$5,700/year — or $158–$475/month — until your loan-to-value ratio drops below 80%. Saving to reach 20% down can pay for itself in 2–3 years in eliminated PMI alone.
The interest rate benefit of a larger deposit
A borrower with a 20% deposit typically gets a rate 0.25–0.75% lower than one with 5% down. On a $300,000 mortgage over 25 years, a 0.5% rate reduction saves approximately $25,000 in total interest.
Don't drain your emergency fund
Lenders want to see that you have funds remaining after the deposit. Leaving at least 3–6 months of living expenses in savings after your purchase is a critical buffer — property ownership brings unexpected costs.
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes, in most loan programs. Conventional loans (Fannie/Freddie) allow gift funds from family members, though they require a gift letter confirming it is not a loan. FHA loans also permit gift funds. Some programs require that at least a portion of the down payment comes from the borrower's own verified savings, particularly if the down payment is below 20%.
How long does it typically take to save a 20% deposit?
It depends on your income, savings rate, and the purchase price. On a $400,000 home, a 20% deposit is $80,000. Saving $1,500/month takes just under 4.5 years; saving $2,500/month takes about 2.5 years. Many buyers in high-cost markets opt for lower-deposit programs and pay PMI rather than waiting years to reach the 20% threshold.
When does PMI or LMI get cancelled?
For conventional US loans, PMI can be cancelled once your loan-to-value ratio drops to 80% — either through scheduled payments, extra principal payments, or appreciation (with a new appraisal). It should be removed automatically when you reach 78% LTV on the original schedule. FHA mortgage insurance often lasts the full loan term regardless of equity built, which is a key cost difference from conventional loans.
Estimate your total upfront costs
Use our Closing Cost Calculator to estimate closing fees on top of your deposit, and our Stamp Duty Calculator if you're buying in the UK.