How Big a Down Payment Do You Really Need?

The 20% figure isn't a legal minimum or a universal requirement. It's the threshold below which most conventional loans require private mortgage insurance (PMI) — an added monthly cost that protects the lender if you default.

At 20% down, you're considered a lower-risk borrower with real equity at stake, so the lender doesn't need the extra insurance. Below 20%, the risk is higher, and PMI is their hedge against it.

That's it. There's no rule requiring 20% — just the PMI threshold and the financial benefit of a lower loan balance.

Several loan programs allow significantly lower down payments:

• Conventional 97 / 3% down. Conventional loans now go as low as 3% down with PMI. Requires good credit (typically 620+) and standard income verification. PMI drops off at 20% equity.
• FHA loans / 3.5% down. Backed by the Federal Housing Administration, these allow down payments as low as 3.5% with a 580+ credit score (10% if 500–579). More flexible on income and credit, but mortgage insurance premiums (MIP) last for the life of the loan if you put less than 10% down — a significant downside.
• VA loans / 0% down. Available to eligible veterans, active-duty military, and surviving spouses. No down payment, no PMI, and competitive rates. One of the best loan products available if you qualify.
• USDA loans / 0% down. For homes in eligible rural and suburban areas. Zero down payment and no PMI, but there's an income limit and geographic restriction. Worth checking if you're buying outside a major metro.

Putting less down means a higher loan balance, a higher monthly payment, and PMI on top. Putting more down reduces all three — but leaves you with less cash.

The difference between 5% and 20% down is about $784/month in this example. That's real. But the difference in upfront cash is $67,500 — money that stays in your pocket if you go with the smaller down payment.

One of the most common mistakes first-time buyers make is draining every dollar of savings into the down payment. Then the HVAC dies in month three.

A home has costs that don't show up in the mortgage: maintenance, repairs, replacements. Appliances fail. Roofs leak. A rough rule is to budget 1% of the home's value per year for maintenance — that's $4,500/year on a $450,000 home, or $375/month. Emergencies don't wait for you to rebuild your savings.

If putting 20% down leaves you with $0 in reserves, you're probably better off putting 10–15% down, paying PMI for a few years, and keeping 3–6 months of expenses in savings. The PMI cost is real, but so is the risk of a financial emergency with no cushion.

There's a persistent argument that you should wait until you can put 20% down. Sometimes that's right. But it depends on the specific numbers in your market.

If home prices are rising faster than you can save, waiting to hit 20% may mean chasing an ever-increasing target while paying rent that builds no equity. In a flat or declining market, waiting makes more sense.

The honest answer is that there's no universal right answer. Run the numbers for your specific situation: compare the total cost of buying now with PMI against the total cost of renting while you save, factoring in local price trends. That's the calculation that actually matters.