How Much to Put Down on a Home: Beyond the 20% Rule

Most people think about down payments backwards. They pick a percentage — 10%, 20%, 25% — and then figure out if they can afford it. But the question of how much to put down on a home isn’t the starting point. It’s the output of a bunch of other decisions you haven’t made yet. Namely: “How does a house purchase fit into what else I am trying to do with my money?”

PMI isn’t the villain everyone thinks it is

A lot of buyers fixate on hitting 20% down to avoid PMI. I get it—nobody wants to pay for mortgage insurance. But PMI is temporary. It falls off once you reach 20% equity, either through payments or appreciation. In certain cases, buyers weigh the cost of paying PMI for a few years against the potential costs of delaying a purchase, recognizing that outcomes depend on market conditions and individual factors.

Here’s what that looks like in practice. You’re saving for a $750,000 home. You want to put down 20%, so you need $150,000. You’ve got $120,000 right now. You figure you can save another $30,000 in a year, maybe a year and a half if things go well.

Meanwhile, home prices are rising 6% annually. By the time you’ve saved that extra $30,000, the house costs $795,000. Now you need $159,000 for 20% down. You’re still short. The target moved.

Or you could buy now with 15% down, accept PMI for a while, and own a $750,000 house that’s appreciating while you live in it. The PMI costs you, say, $200–$300 a month. But you’ve locked in the purchase price before it jumped another $45,000. And you’re building equity instead of writing rent checks.

This isn’t theoretical. It’s the math that a lot of buyers ran in 2020, 2021, and 2022. The ones who waited for 20% got priced out. The ones who bought with 10% or 15% and paid PMI for a couple of years came out ahead.

Three ways to potentially buy a $1 million home

Let’s say you’re buying a $1 million house. You’ve got options.

Option 1: Put down 20% ($200,000). You avoid PMI. Your mortgage is $800,000. Under current tax law, mortgage interest is only deductible on the first $750,000 of debt, so you lose some tax benefit on that last $50,000. But you’ve kept $50,000–$100,000 more in cash than you would have with a bigger down payment. You’ve got room to breathe.

Option 2: Put down 25% ($250,000). You avoid PMI. Your mortgage is $750,000, which means all your interest is deductible. You’ve maximized the tax efficiency. But you’ve also drained an extra $50,000 out of your liquid reserves. If something comes up—kid needs braces, roof needs replacing, you want to take a sabbatical—you’ve got less cushion to work with.

Option 3: Put down 10–15% and pay PMI for a while. Monthly payments are higher initially, but less cash is used upfront. PMI generally falls away once equity reaches certain thresholds, though the timing can vary. This option involves trade‑offs between payment levels, liquidity, and longer‑term costs.

Each of these has something going for it. The question is what trade-offs you’re willing to accept, and that depends on what else you’re trying to fund.

What else are you trying to fund?

Most people buying a home aren’t just buying a home. They’re also thinking about having kids, or they’ve got kids and childcare is expensive. They’re thinking about career moves—maybe a job change, maybe going back to school, maybe starting a business. They’re thinking about aging parents who might need help. They’re thinking about travel, about experiences they don’t want to put off forever.

All of those things cost money. And a lot of them don’t happen on a convenient schedule. Childcare costs, elder care costs, tuition—they don’t spread out evenly over five years. They cluster. You get hit with three big expenses in the same 18-month window, and if you’ve put every dollar you had into the down payment, you’re stuck. You’re either borrowing at high rates or you’re saying no to things that matter.

Take education costs. Grad school, certifications, kids heading to college. You could pay cash, or you could borrow. If you’re eligible for subsidized student loans, those might cost you less than the interest on your mortgage. Some households compare the cost of different borrowing options and liquidity needs when weighing education expenses alongside housing decisions. Or maybe it doesn’t—depends on your tax situation, your income trajectory, a bunch of other variables. But the point is, if you’ve drained your cash to maximize your down payment, you’ve taken that option off the table.

Or travel. You’ve been talking about taking the family to Europe for years. You finally have the time, the kids are the right age, and your parents are still healthy enough to come along. Do you go? Or do you skip it because you put an extra $50,000 into the down payment, and now you don’t have the cash? If you’re a disciplined saver, you can plan for this. Build it into the budget, save monthly, don’t finance it on a credit card. But that requires having cash flow, which requires not stretching yourself so thin on the down payment that there’s nothing left over.

Here’s the other thing: people underestimate how much cash they need on hand after closing. You buy the house, you move in, and then stuff breaks. The HVAC dies. The water heater goes. You want to repaint, replace the floors, and do something about the backyard. If you’ve drained your reserves to maximize the down payment, every one of those expenses becomes a source of stress instead of just a thing you handle.

Comfort is valid, but only if it doesn’t make you fragile

Some people just don’t like carrying a big mortgage. The idea of owing $800,000 or $900,000 feels heavy. They’d rather put more down, lock in more equity, and sleep better at night knowing the balance is lower.

That’s fine. If you’re one of those people, and you’ve still got six months of expenses in cash after putting down 25% or 30%, then do it. Lower your payment, maximize your interest deduction, and feel better about the balance. Comfort matters.

But comfort only matters if it doesn’t create fragility somewhere else. Some buyers choose to make significantly larger down payments to reduce their mortgage balance. An emergency comes up, and they can’t handle it. They’ve got all this equity locked in the house, but they can’t access it without selling or taking out a HELOC at whatever rate the bank wants to charge them. They’ve reduced one form of stress—monthly mortgage payments—and created another form of stress—no cash buffer.

That’s not peace of mind. That’s a different kind of fragility.

So the question isn’t “do I feel more comfortable with a lower mortgage balance?” It’s “do I feel more comfortable with a lower mortgage balance or with more cash in the bank?” Both are valid answers. But you have to pick the one that fits your actual life, not the one that sounds better in theory.

Your down payment is a capital allocation decision

Here’s what people miss: the down payment isn’t just about the house. It’s about everything else on your balance sheet.

You pull $250,000 out of savings to put down 25%. That’s $250,000 you’re not investing. That’s $250,000 you’re not keeping liquid for other opportunities. If you’re sitting on appreciated stock and you sell it to fund the down payment, you’re triggering capital gains taxes. If you’re pulling from a taxable brokerage account that’s been compounding for years, you’re reallocating capital in a way that changes your overall risk profile.

None of this is inherently good or bad. It’s just trade-offs. But you need to know what you’re trading off.

So before you decide on a down payment, write down three things: What are the three most important things you need money for in the next three to five years, not just the house, everything. How many months of expenses do you want in cash after you close? And what would bother you more: paying PMI for a couple of years, or owning a home but having to say no to other priorities because you’ve got no financial cushion?

Once you’ve answered those, look at your down payment options — 10–15%, 20%, 25% — and see which one actually supports the life you’re trying to live. Not the life that sounds responsible on paper. The one you’re actually trying to live.

A smaller down payment costs you more in the short term. PMI, higher interest payments. But it might leave you better positioned for everything else that’s coming — emergencies, opportunities, expenses you know are out there but haven’t hit yet. The most efficient choice on a spreadsheet isn’t always the one that works best in reality.

Frequently asked questions (FAQs)

Is 20% down payment required?

No. While 20% down avoids PMI, many buyers purchase with 10-15% down. The decision depends on your cash reserves, other financial priorities, and how you value liquidity versus a lower mortgage balance.

How much should I put down to avoid PMI?

Putting down 20% or more typically avoids PMI. However, paying PMI temporarily while preserving cash for other goals can sometimes be the better strategic choice, depending on your complete financial situation.

What’s better: bigger down payment or emergency fund?

Both matter, but maintaining liquid reserves often provides more financial security than maximizing your down payment. Having 6-12 months of expenses in cash gives you flexibility for unexpected costs, career transitions, and opportunities that arise after closing.

About the author: Dan Moore, CFP®, is a Lead Advisor at Brighton Jones. He helps high-income professionals and families design tax-efficient investment strategies and retirement plans aligned with their principles and future objectives.

Disclosure: This content is for informational and educational purposes only and should not be construed as individualized advice. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. For individualized advice tailored to your specific circumstances, please consult with your adviser.