How Much Down Payment Do You Really Need?
The 20% rule is a myth. Conventional loans start at 3%, FHA at 3.5%, and VA and USDA at zero. Here's what each costs you and how to choose.
You do not need 20% down to buy a home. Most buyers put down far less — conventional loans start at 3%, FHA at 3.5%, and VA and USDA loans require nothing at all. The 20% figure is real, but it is a threshold for avoiding mortgage insurance, not the price of admission.
What changes with the size of your down payment is the trade-off between cash today and cost over time. A smaller down payment gets you in the door sooner; a larger one lowers your payment and skips insurance. Neither is automatically right.
The real minimums
Lenders and loan programs set very different floors:
| Loan type | Minimum down | Notes |
|---|---|---|
| Conventional | 3–5% | 3% for many first-time-buyer programs; PMI until 20% equity |
| FHA | 3.5% | Mortgage insurance for the life of most loans |
| VA (military/veterans) | 0% | No PMI; one-time funding fee |
| USDA (rural) | 0% | Income and area limits; guarantee fee applies |
| Jumbo | 10–20%+ | Larger loans, stricter requirements |
Run your scenario through the Down Payment Calculator to see how much cash each path demands, and the FHA Loan Calculator if a low-down government loan is on the table.
The PMI trade-off
Put down less than 20% on a conventional loan and you’ll pay private mortgage insurance (PMI) — typically 0.3% to 1.5% of the loan per year, billed monthly, that protects the lender, not you. It is the price of borrowing with a smaller cushion.
Here is how a $400,000 home looks across down payment sizes, assuming a 6.5% rate over 30 years:
| Down % | Cash down | Loan amount | Est. monthly PMI | Notes |
|---|---|---|---|---|
| 3% | $12,000 | $388,000 | ~$160 | Lowest cash, highest PMI |
| 5% | $20,000 | $380,000 | ~$140 | Common first home |
| 10% | $40,000 | $360,000 | ~$110 | PMI shrinks |
| 20% | $80,000 | $320,000 | $0 | No PMI |
The good news: conventional PMI is not forever. You can request cancellation once you reach 20% equity, and it drops automatically at 22%. Price the full payment including insurance with the Mortgage Calculator with PMI so the monthly number is honest.
Bigger down payment: the case for
A larger down payment is a guaranteed way to lower your costs:
- Smaller loan, lower payment — you borrow less and pay less interest over the life of the loan.
- No PMI at 20% — you skip a recurring cost that buys you nothing.
- Stronger offer — sellers and lenders read a big down payment as lower risk.
- Instant equity — a cushion if home values dip.
Smaller down payment: the case for
Putting less down is not a mistake — sometimes it is the smarter move:
- Buy sooner. Waiting years to save 20% means more rent paid and, often, higher home prices to chase.
- Keep cash in reserve. An emergency fund, closing costs and moving expenses matter more than a maxed-out down payment.
- Opportunity cost. Money not sunk into equity can stay invested or cover renovations.
The risk is real, though: less money down means a bigger loan, a higher payment, PMI, and less equity if you need to sell early. Check what each price implies for your budget with the Home Affordability Calculator, and read how much house you can afford before you stretch. If PMI is part of your plan, understanding PMI explains how to shed it as fast as possible.
Down payment assistance, briefly
If cash is the only thing standing between you and a home, you may not be on your own. Thousands of down payment assistance (DPA) programs exist through state housing agencies, cities and nonprofits — offering grants, forgivable loans or low-interest second mortgages to cover part of the upfront cost. Most target first-time buyers (often defined as not having owned in three years) and set income limits tied to your area. They rarely advertise loudly, so ask a local lender or your state housing finance agency what you qualify for.
The decision rule
Put down enough to keep a real emergency fund intact after closing — then size up only if the extra cash isn’t working harder elsewhere. If reaching 20% means draining your savings or waiting years while prices climb, a smaller down payment with temporary PMI is usually the better trade. If you can clear 20% and still sleep at night, do it and skip the insurance.
Is it better to put 20% down or invest the difference? If your after-tax investment return reliably beats your mortgage rate and you’ll actually invest the gap, a smaller down payment can win. If not, the guaranteed savings of avoiding PMI and interest is hard to beat.
Does a bigger down payment get me a lower rate? Sometimes — more equity can nudge your rate down and removes PMI, but the biggest rate lever is still your credit score.
Frequently asked
Do you really need 20% down to buy a house?
No. Conventional loans start at 3% down, FHA at 3.5%, and VA and USDA loans require nothing at all. The 20% figure is a threshold for avoiding mortgage insurance, not the price of admission.
Most buyers put down far less; jumbo loans are the exception, typically needing 10 to 20% or more because of stricter requirements on larger balances.
How much is PMI on a low down payment?
Private mortgage insurance typically runs 0.3% to 1.5% of the loan per year, billed monthly, when you put less than 20% down on a conventional loan.
On a $400,000 home with 3% down, that's roughly $160 a month; at 10% down it shrinks to about $110. You can request cancellation at 20% equity, and it drops automatically at 22%.
Is it better to put 20% down or keep the cash?
Put down enough to keep a real emergency fund intact after closing, then size up only if the extra cash isn't working harder elsewhere.
If reaching 20% means draining savings or waiting years while prices climb, a smaller down payment with temporary PMI is usually the better trade. If your after-tax investment return reliably beats your mortgage rate, keeping the cash can win.
This article is for general educational purposes and is not financial advice. Confirm specifics with a licensed lender or advisor.