A down payment is the upfront cash you pay when purchasing a home. It is expressed as a percentage of the home price and directly reduces the loan amount you need to borrow. Most conventional mortgages allow down payments as low as 3% to 5%, while FHA loans may accept as little as 3.5% for qualified buyers.

The 20% threshold is significant because it eliminates the requirement for private mortgage insurance (PMI). PMI protects the lender if you default on the loan and typically costs between 0.5% and 1.5% of the loan amount per year. On a $320,000 loan, that could add $133 to $400 per month to your housing costs until you reach 20% equity.

A larger down payment reduces your monthly payment, lowers the total interest paid over the life of the loan, and gives you immediate equity in the home. However, it also ties up more cash upfront. Consider your complete financial picture, including emergency funds and other investment opportunities, when deciding how much to put down.