Here's What Happens When You Put 30% Down on a Home

Home prices are expensive these days, so for some people, coming up with a sufficient down payment is a huge challenge. But if you're signing a conventional mortgage, it's a good idea to try to make a 20% down payment on your home. Doing so will help you avoid private mortgage insurance, a costly expense that's typically tacked onto your monthly mortgage payments with down payments under 20%.

But what if you're sitting on extra cash and have the ability to put down 30% of your home's purchase price? In that case, you may want to go ahead and put down the extra money as long as it leaves you with a solid emergency fund left over. Making a 30% down payment could make your ongoing mortgage payments much easier to fit into your budget.

The upside of putting down more

As a general rule, your housing costs, including your mortgage, property taxes, homeowners association fees (if applicable), and homeowners insurance, should not exceed 30% of your take-home pay. If you go beyond that threshold, you could put yourself at risk of falling behind on bills (housing-related or otherwise) and racking up costly debt to stay afloat, like that of the credit card variety.

Making a 30% down payment on your home could help you better stick to that 30% limit. It could also make it so you're able to just plain more comfortably afford your home in general.

As of this writing, Freddie Mac puts the average 30-year mortgage rate at 6.82%. So let's say you decide to buy a $400,000 home and put down 20%, or $80,000. That leaves you with a $320,000 mortgage. At 6.82%, your monthly payment for principal and interest will be $2,090.

But let's say you have enough money in the bank to make a 30% down payment, leaving you to put down $120,000 and borrow $280,000. At that same interest rate, your monthly principal and interest payment will be $1,828. That means you're spending $262 less per month, or $3,144 less per year. That gives you more flexibility to cover other expenses.

Also, let's say that property taxes and insurance on your home cost $550 a month combined. If we add that to $2,090, we get $2,640. If your take-home pay comes to $8,000, it'll leave you spending 33% of your income on housing, which is a notch above where you'd ideally want to be. But if we add $1,828 to $550, it's $2,378. That puts you just under the 30% mark for a monthly take-home pay of $8,000. You can run the numbers for your situation using a mortgage calculator.

There's total interest savings to consider, too

Not only might making a 30% down payment on your home give you more flexibility month to month, but it could save you money on mortgage interest all in. In the above example, a 30% down payment instead of 20% saves you about $54,000 on interest throughout the life of your loan. This assumes you keep the same loan at the same rate and never refinance.

Of course, you may not want to put down much more than 30% as a down payment, because then you're tying up a lot of cash in your home. But if you can afford to put down 30% while still having enough money for an emergency fund that can cover at least three months of living expenses, then it could be something to consider, especially if you like to have wiggle room in your budget.