How Much Down Payment Do You Actually Need?
The "20% down" figure often quoted isn't a legal requirement — it's the threshold most conventional lenders use to waive Private Mortgage Insurance (PMI). Many loan programs allow far less: conventional loans can go as low as 3% down for qualified first-time buyers, and FHA loans allow 3.5% down with a lower minimum credit score requirement.
What Is PMI, and Why Does It Matter?
Private Mortgage Insurance protects the lender (not the borrower) if the loan defaults, and is typically required whenever a conventional loan has less than 20% down. PMI usually costs 0.5-1.5% of the loan amount annually, added to the monthly payment, and can typically be removed once the loan balance drops to 80% of the home's value.
Down Payment vs. Closing Costs
The down payment is only part of the cash needed at closing — buyers also typically pay closing costs of roughly 2-5% of the purchase price, covering items like appraisal fees, title insurance, and loan origination charges. A common budgeting mistake is saving only for the down payment and being caught short on closing costs.
Should You Put Down More Than 20%?
Putting down more than 20% avoids PMI and lowers the monthly payment, but it also ties up more cash in an illiquid asset. Whether that trade-off makes sense depends on the mortgage rate versus what that extra cash could otherwise earn, and how much liquidity a buyer wants to keep for emergencies or other goals.
Down Payment Assistance Programs
Many US states and some employers offer down payment assistance programs — grants or low-interest second loans — aimed primarily at first-time buyers. Eligibility and amounts vary significantly by location, so checking state housing finance agency programs is often worthwhile before assuming a large down payment is the only path to buying.