Down payment, loan amount, and loan to value
Three figures describe the cash side of a home purchase and they are all derived from two inputs. The down payment percentage is the down payment divided by the home price, times 100. The loan amount is the price minus the down payment. The loan to value ratio, or LTV, is the loan amount divided by the price, times 100, which is always 100 minus the down payment percentage.
This calculator reports all three, plus a savings target and a timeline for reaching it. The down payment you enter is clamped to the range between zero and the home price, so entering more than the price will not produce a negative loan. Everything on the result panel follows from the price and the down payment; the target and savings fields drive only the timeline.
LTV is the figure lenders actually use. It determines whether mortgage insurance is required, and it feeds into pricing adjustments that move the interest rate. The thresholds that matter on conventional loans cluster at 95, 90, 85, and 80 percent LTV, which is why an extra one or two percent of down payment sometimes changes the rate and sometimes does nothing at all.
Worked example: 500,000 home with 100,000 down
Using the defaults of a 500,000 home price and a 100,000 down payment, the down payment percentage is 100,000 / 500,000 * 100 = 20.0 percent. The loan amount is 500,000 - 100,000 = 400,000, and the LTV is 400,000 / 500,000 * 100 = 80.0 percent. At exactly 80 percent LTV, private mortgage insurance is generally not required on a conventional loan.
The savings side uses the target percentage, current savings, and monthly savings fields. With a 20 percent target on a 500,000 home, the target amount is 500,000 * 0.20 = 100,000. With 60,000 already saved, the remaining amount is 100,000 - 60,000 = 40,000. Saving 2,000 a month, the calculator divides 40,000 by 2,000 and rounds up, giving 20 months.
The timeline is deliberately simple: remaining divided by monthly, rounded up to a whole month. It assumes no investment return on the money you have saved, no change in the monthly amount, and no change in the home price. Over 20 months in a market where prices are rising, the target itself would move, which the calculator does not model.
What each down payment level actually changes
Twenty percent is the well known threshold because it is the point at which conventional loans no longer require borrower paid mortgage insurance at origination. It is not a minimum. Conventional loans go as low as 3 percent for some first time buyer programs, FHA loans require 3.5 percent with qualifying credit, and VA and USDA loans allow zero down for eligible borrowers.
Below 20 percent, two costs appear. Mortgage insurance is charged monthly, typically between 0.3 and 1.5 percent of the loan per year depending on credit score and LTV. Loan level pricing adjustments may also raise the interest rate. Both scale with how far below the threshold you are, so 15 percent down is meaningfully cheaper than 5 percent down, not merely closer to the goal.
Above 20 percent, the marginal benefit is smaller and more linear. Each additional dollar of down payment simply reduces the amount borrowed, saving interest at the note rate. There is no further threshold effect, so the decision becomes a comparison between the mortgage rate and whatever else the cash could earn, along with the value of keeping reserves.
Cash needed at closing beyond the down payment
The down payment is not the only money due. Closing costs for a buyer generally run two to five percent of the purchase price and cover lender fees, title insurance, appraisal, credit report, recording fees, and transfer taxes where they apply. On a 500,000 purchase that is roughly 10,000 to 25,000 on top of the down payment.
Prepaid items are collected as well. Lenders typically require the first year of homeowners insurance paid at closing, plus several months of property tax and insurance deposited into the escrow account, plus interest from the closing date to the end of that month. These are not fees in the sense of being consumed, they are your own future expenses collected early, but they still have to be funded.
Lenders also want to see reserves, meaning liquid assets remaining after closing, commonly measured in months of the new housing payment. Requirements vary by loan type and by the strength of the file. Planning to arrive at closing with nothing left is a common reason a file that looked approvable runs into trouble late.
The mistake people make when saving for a down payment
The most common mistake is aiming at 20 percent when waiting costs more than mortgage insurance would. If saving the additional amount takes several years and prices or rates rise in the meantime, the borrower who waited can end up with a higher payment despite the larger down payment. The calculation is specific to a market and a timeline, and running the timeline in this tool against a realistic view of the alternative is the way to see it.
The second mistake is budgeting only the down payment and not the closing costs and reserves. A buyer who saves exactly 100,000 for a 20 percent down payment on a 500,000 home and has nothing else will not be able to close. The practical target is the down payment plus roughly three to five percent of the price plus a few months of payments.
The third is putting the down payment savings somewhere volatile. Money needed within a few years is generally held in cash or short term instruments for a reason: a decline of 20 percent the quarter before closing is not recoverable on that timeline. The calculator assumes no return on savings, which is a conservative reflection of that reality.