How much should you put down on a conventional loan?

Most down payment advice collapses into a single rule of thumb, and rules of thumb hide the decision. Every additional dollar of down payment does four things at once: it lowers the loan amount, it lowers loan-to-value (which may reduce or eliminate mortgage insurance), it removes a dollar from your post-closing reserves, and it forgoes whatever else that dollar could have done.

A good decision weighs all four against your actual situation — how long you plan to keep the loan, how much cash you need to feel safe, and how sensitive your qualification is to reserves.

Loan-to-value is the loan amount divided by the property value (generally the lesser of price and appraised value). It is the single number that connects your down payment to mortgage insurance, and it is evaluated in tiers rather than continuously.

Because pricing moves at tier boundaries, adding a modest amount of cash can produce a disproportionate improvement if it crosses a boundary — and almost none if it does not. That is why comparing two specific scenarios beats optimizing a percentage in the abstract.

Directional and structural only. Program availability, mortgage insurance pricing, and eligibility vary by lender, credit profile, occupancy, and property type; no rate, premium, or payment is quoted here.

Private mortgage insurance is often treated as a penalty to avoid. It is more accurately a financing cost that buys earlier entry, and on a conventional loan it is generally removable — by borrower request once the loan reaches the applicable equity threshold, or automatically on the amortization schedule.

That changes the arithmetic. PMI carried for a few years while equity builds is a very different cost from PMI carried for a decade. Your expected holding period, and the pace at which the loan amortizes, belong in the comparison.

A useful discipline: decide the minimum post-closing cash cushion you will not go below, subtract closing costs and moving expenses, and treat only what remains as available for down payment.

Conventional programs define eligible sources of down payment funds, documentation, and seasoning. Gift funds are permitted in defined circumstances that vary by occupancy and program, and down payment assistance programs exist at state and local levels with their own eligibility rules.

Because documentation matters as much as the amount, confirm eligible sources with a licensed loan officer before transferring money between accounts. Unexplained deposits are one of the most common avoidable delays in underwriting.

Myth: You must put 20% down on a conventional loan.

Twenty percent is the LTV threshold where PMI generally is not required at origination, not a minimum contribution.

Myth: PMI is money thrown away.

PMI is the cost of entering with less cash, and on a conventional loan it is generally removable rather than permanent.

Myth: Bigger down payment is always the safer choice.

Spending reserves to lower LTV can leave you less able to absorb a shock right after closing, when risk is highest.

Myth: Every extra dollar improves pricing equally.

Mortgage insurance and pricing move in tiers, so the value of an extra dollar depends on where you sit relative to a boundary.

Myth: You can add cash later to remove PMI instantly.

Removal follows defined rules and thresholds; the process and timing are not the borrower's choice alone.

• Assuming 20% is required and delaying a purchase for years to reach it.
• Draining reserves to hit a specific LTV, then having nothing left for repairs or a gap in income.
• Comparing down payment scenarios that use different rate, points, or escrow assumptions.
• Ignoring the expected holding period when weighing mortgage insurance cost.
• Moving money between accounts without confirming documentation and seasoning requirements first.
• Forgetting that closing costs and moving expenses sit alongside the down payment in the same cash pool.

• Can you show me the same scenario at two or three down payment tiers, with identical assumptions?
• Where is the nearest LTV tier boundary for my file, and what does crossing it change?
• How is mortgage insurance structured in each scenario, and what ends it?
• What reserves do you expect after closing for this occupancy and property type?
• Which down payment sources are eligible for my program, and what documentation is needed?
• If I keep more cash instead, does that strengthen or weaken my file?