Hong Life CalculatorsUnderstanding the down payment calculator — concept and principle
This calculator works out the down payment, loan amount, loan-to-value ratio (LTV), closing costs and total cash needed to buy a home, then estimates how many months it will take to save the rest. It also flags whether mortgage insurance is likely and shows the down payment needed for 20%. Use it to set a savings plan for buying a home.
How it is calculated
- Down payment = price × down-payment %; loan = price − down payment; LTV = loan ÷ price.
- Closing costs = price × closing-cost %.
- Cash needed = down payment + closing costs; still to save = cash needed − current savings.
- Months to save, with monthly rate i = annual rate ÷ 12: n = ln[(need × i + saving) ÷ (savings × i + saving)] ÷ ln(1 + i).
- Conventional US loans usually require private mortgage insurance (PMI) below 20% down.
The principle
The down payment is your equity at the start; the rest is borrowed. A larger down payment lowers the loan, the monthly payment and often the interest rate, and at 20% or more it usually removes PMI on a conventional loan. Closing costs come on top, which is easy to forget. The months-to-save formula comes from the future value of a growing savings balance with regular monthly deposits.
Worked example
Default inputs: price $400,000, 10% down, closing costs 3%, savings $25,000, saving $1,000 a month at 4%.
- Down payment = 400,000 × 10% = $40,000.00; loan = $360,000; LTV = 90%.
- Closing costs = 400,000 × 3% = $12,000; cash needed = $52,000.
- Still to save = 52,000 − 25,000 = $27,000.
- With i = 0.04 ÷ 12: n = ln[(52,000i + 1,000) ÷ (25,000i + 1,000)] ÷ ln(1 + i) ≈ 23.98, so about 24 months.
- Mortgage insurance: likely (under 20% down). A 20% down payment would be $80,000.
| Home price | Down payment |
|---|---|
| 100,000 | $10,000.00 |
| 200,000 | $20,000.00 |
| 300,000 | $30,000.00 |
| 400,000 | $40,000.00 |
| 500,000 | $50,000.00 |
| 600,000 | $60,000.00 |
| 800,000 | $80,000.00 |
How to read the result
Cash needed is the real target, not just the down payment. If the time to save is long, consider a lower price, a higher monthly saving or a loan programme with a smaller minimum down payment, weighing the extra cost of mortgage insurance and a bigger loan. Keep an emergency fund separate.
Common mistakes
- Forgetting closing costs, moving costs and reserves.
- Using all savings for the down payment and leaving no emergency fund.
- Ignoring PMI or a higher rate when putting down less than 20%.
- Assuming interest on savings is guaranteed.
Frequently asked questions
How much should I put down on a house?
There is no single rule; 20% avoids PMI on US conventional loans, but many programmes allow less.
What are typical closing costs?
The CFPB suggests budgeting about 2% to 5% of the price.
What is LTV?
Loan-to-value: the loan amount divided by the home's price or appraised value.
Sources: Consumer Financial Protection Bureau, "How to decide how much to spend on your down payment" (2017)