Most first-time homebuyers operate under one assumption: "I need 20% down to buy a house."
Where does this come from? Old conventional wisdom from when 20% really was the minimum standard for most mortgages. Today, that's not how it works. You can buy a home with as little as 0% down through some programs, 3% down through standard conventional loans, and 3.5% down through FHA loans.
But here's the more interesting question: just because you CAN buy with less, should you? The answer is more nuanced than either side of the debate admits — and waiting to save the "right" amount often costs more than buying earlier with less.
This guide walks through every down payment option, what each one actually costs, and the framework for deciding what's right for you.
- You can buy a home with as little as 0-3% down through various loan programs
- 20% down eliminates PMI (Private Mortgage Insurance), saving $100-$400/month
- Smaller down payments mean higher monthly payments but earlier homeownership
- Waiting to save 20% often costs more than PMI when home prices appreciate during the wait
- The "right" down payment depends on your timeline, market, and other financial priorities — not a universal rule
Every down payment option, ranked
There are essentially six down payment paths for most homebuyers. Each has trade-offs.
Option 1: 0% down (VA loans, USDA loans)
Who qualifies:
- VA loans — military veterans, active-duty service members, and some surviving spouses
- USDA loans — buyers in rural areas (defined broadly — many suburbs qualify) with income below certain limits
Pros:
- No down payment required
- No PMI
- Competitive interest rates
- VA loans have no loan limits in most cases
Cons:
- VA loans have a "funding fee" (1.4-3.6% of loan amount, can be financed)
- USDA loans require property in eligible rural areas
- Both have income/eligibility requirements
If you qualify for either, these are among the best mortgage products available. Don't overlook them.
Option 2: 3% down (Conventional 97 loan)
Who qualifies:
- First-time homebuyers (or those who haven't owned in 3+ years)
- Income limits depending on lender
- Credit score requirements (typically 620+)
Pros:
- Very low down payment requirement
- Lower mortgage insurance than FHA
- PMI ends when you hit 20% equity (unlike FHA)
Cons:
- PMI required until you reach 20% equity
- Slightly higher interest rates than 20% down loans
- Income limits at some lenders
This is the most underused option for first-time buyers. It's a real conventional loan, not a "first-time buyer special" — and the path to PMI removal is cleaner than FHA.
Option 3: 3.5% down (FHA loan)
Who qualifies:
- Anyone with credit score 580+ (or 500-579 with 10% down)
- More flexible debt-to-income requirements than conventional
- No first-time buyer requirement
Pros:
- Easier credit qualification
- More flexible income/employment requirements
- Lower down payment than most conventional options
Cons:
- Mortgage Insurance Premium (MIP) lasts the LIFE of the loan if you put less than 10% down
- Upfront MIP charge of 1.75% (can be rolled into loan)
- Annual MIP is higher than conventional PMI
- Property must meet FHA standards (some condos don't qualify)
The big drawback: lifetime MIP. If you take an FHA loan with 3.5% down, you'll pay MIP for the entire 30 years — even after you have 50%+ equity. The only way out is refinancing into a conventional loan once you have 20% equity.
Option 4: 5% down (Standard conventional)
Who qualifies:
- Most borrowers with credit score 620+
- No special programs needed
Pros:
- Widely available, easy to qualify
- PMI ends at 20% equity
- More competitive rates than 3% down
Cons:
- Still requires PMI for ~7-10 years typically
- Higher monthly payment than larger down payments
This is the "middle ground" most buyers end up at. Reasonable down payment, manageable PMI period, no special program required.
Option 5: 10% down
Pros:
- Lower PMI rate than 5% down
- PMI period shortens significantly
- Often qualifies for slightly better interest rate
Cons:
- Still requires PMI
- Requires significantly more savings
Option 6: 20% down (no PMI)
Pros:
- No PMI required — save $100-$400+/month
- Lowest interest rates
- Lowest monthly payment for given loan amount
- Immediate equity cushion (less risk of being underwater)
- Often viewed favorably by sellers in competitive markets
Cons:
- Requires substantial savings ($50,000+ for typical homes)
- Takes years to save for most buyers
- During the wait, home prices may rise
Geaux Home — Mortgage Calculator
Run scenarios with different down payment amounts and see how your monthly payment changes. Includes PMI calculations so you see the real number.
Use the calculatorThe math: 5% down vs 20% down on the same house
Let's run the actual numbers. Same $400,000 home, same buyer, two different down payment strategies.
Scenario A: 5% down ($20,000)
| Item | Amount |
|---|---|
| Down payment | $20,000 |
| Loan amount | $380,000 |
| Interest rate | 7.25% |
| Monthly P&I | $2,593 |
| Monthly PMI (~0.7% of loan/year) | $222 |
| Total monthly P&I + PMI | $2,815 |
| PMI removal timeline (regular payments) | ~10-11 years |
| Total PMI paid over loan life | ~$26,640 |
Scenario B: 20% down ($80,000)
| Item | Amount |
|---|---|
| Down payment | $80,000 |
| Loan amount | $320,000 |
| Interest rate | 7.00% (slightly lower) |
| Monthly P&I | $2,129 |
| Monthly PMI | $0 |
| Total monthly P&I | $2,129 |
| Total PMI paid | $0 |
The comparison
- Monthly payment difference: $686/month higher with 5% down
- Cash needed upfront: $60,000 less with 5% down
- Total PMI over time: ~$26,640 more with 5% down
But here's the part most articles skip: what does the $60,000 you DIDN'T put as down payment do for you?
If you take Scenario A and invest the $60,000 you would have used for down payment in an S&P 500 index fund averaging 7%, after 10 years (when your PMI would end):
- Investment value: ~$118,000
- Total PMI paid: $26,640
Net result: $60k → $118k while paying $26.6k in PMI = net positive $31,360
The "PMI is throwing money away" argument falls apart when you account for what your down payment money could have earned elsewhere. PMI does cost you something, but waiting to save 20% often costs more.
The waiting problem
Here's the math nobody talks about: while you're saving for 20% down, the housing market doesn't wait for you.
Scenario: You can afford $400k today with 5% down. You decide to wait 4 years to save 20%.
During those 4 years, if home prices appreciate 4%/year (historical average):
- $400,000 home in year 0 → $467,943 in year 4
To buy at 20% down on the new price, you now need $93,589 — not $80,000. You also pay $67,943 more for the same house.
Even if you somehow saved aggressively and accumulated the new $93,589, you've paid an extra $67,943 just for waiting. Plus you missed 4 years of:
- Mortgage interest tax deductions
- Building equity through payments
- Home appreciation (which would have been yours)
- Locking in interest rates (which often rise)
The 4-year "save for 20% down" plan often costs $50,000-$100,000 in lost opportunity in a normal real estate market.
The waiting problem doesn't apply if home prices are FALLING. In declining markets, waiting can save you money — but it's a gamble. Most local real estate markets historically trend upward over 5-10 year periods, even with intermediate dips. Trying to time the market typically loses to buying when you're ready.
When you SHOULD wait to save more
The "buy now with less" argument isn't universal. Sometimes waiting is the right call:
- You have no emergency fund. Buying a home with $0 in savings after the down payment is dangerous. Wait until you can buy with 5%+ down AND have 3-6 months of expenses left.
- You have significant high-interest debt. Credit card debt at 22% is more urgent than homeownership. Clear that first.
- You're in an unstable job or income situation. Lock-in to a 30-year commitment requires income stability.
- You're unsure where you'll be in 3-5 years. Buying makes financial sense if you'll be there 5+ years. Less than that, renting is usually cheaper after factoring closing costs and selling expenses.
- The local market is in clear bubble territory. Prices growing 20%+/year in your area is unsustainable. Renting until things normalize can be smart.
- Your only path to 20% would require gutting your retirement contributions. The math of missed retirement compounding is usually worse than PMI.
Down payment assistance programs
Many buyers don't know about state, local, and employer down payment assistance programs. These can provide:
- Grants (free money, no payback required)
- Forgivable loans (no payback if you live in the home X years)
- 0% interest loans (payable only when you sell)
- Matched savings programs (state matches what you save)
Check:
- Your state's housing finance authority — every state has one
- Your city's housing department — many cities have local programs
- Your employer's benefits — some companies offer down payment assistance, especially hospitals and universities
- First-time homebuyer programs — through nonprofits like NeighborWorks, Habitat for Humanity's lending programs, etc.
- Specific groups — programs for teachers, nurses, police officers, military, USDA areas
These programs can provide $5,000-$50,000+ in assistance for buyers who qualify. They're criminally underused because they're not well-advertised.
The "20% myth" exception worth knowing
There IS one scenario where 20% down is clearly best: if you have far more than 20% available and don't need the extra money for anything else.
If you have $200,000 in savings and you're buying a $400,000 home, putting down $80,000 (20%) and keeping $120,000 in cash often wins — you avoid PMI AND keep liquidity. Going to 30-40% down ($120-160k) sacrifices liquidity for relatively small monthly savings.
In this scenario, exactly 20% is often the sweet spot.
The decision framework
Here's a simplified decision tree:
1. Do you have 6 months of expenses in emergency savings (after down payment)?
- No → Wait until you do
- Yes → Continue
2. Do you have credit card debt or other high-interest debt?
- Yes → Pay that off first
- No → Continue
3. Are you contributing at least to your full 401(k) match?
- No → Fix that before saving for a house
- Yes → Continue
4. Are you planning to live in this home at least 5 years?
- No → Renting probably makes more sense
- Yes → Continue
5. Can you afford the monthly payment (including PMI if applicable) at 5-10% down?
- No → Either save more or look at cheaper homes
- Yes → Buy now if local market is reasonable
6. Are home prices in your area appreciating faster than 3-4%/year?
- Yes → Buying with less down probably beats waiting
- No → Either choice is reasonable; pick based on your other priorities
Common questions
What if I have credit issues — can I still get a mortgage?+
FHA loans are designed for borrowers with credit challenges. You can qualify with a score as low as 580 (with 3.5% down) or 500-579 (with 10% down). VA loans have flexible credit requirements. Even conventional loans go down to 620 typically. The big factor isn't whether you can qualify, but at what interest rate — a 580 score might pay 1-2% higher than a 750 score, costing you tens of thousands over the loan.
Can I use gift money for a down payment?+
Generally yes. Most loan programs allow gift funds from family members. You'll need a 'gift letter' confirming the money isn't a loan that needs to be repaid. Some programs (like FHA) also allow gifts from employers, charitable organizations, and government down payment assistance programs.
What's a 'piggyback loan' or '80/10/10' structure?+
This is when you take out two loans simultaneously to avoid PMI without 20% down: an 80% primary mortgage, a 10% second mortgage (often a HELOC), and 10% down payment in cash. It used to be common but has fallen out of favor because second mortgages now have higher rates than they did pre-2008. Sometimes still useful in specific situations — ask your lender to compare.
Should I withdraw from my 401(k) for a down payment?+
Generally no, but there are nuances. Many 401(k) plans allow loans (not withdrawals) of up to 50% of your balance or $50,000, whichever is less. You pay yourself back with interest. This is dramatically better than an early withdrawal, which incurs taxes + 10% penalty. Roth IRA contributions (not earnings) can also be withdrawn without penalty. Still — these should be last resorts. Compounding lost from early retirement withdrawals is usually worse than PMI.
What is 'closing cost' and how much should I expect?+
Closing costs are fees paid at closing — including loan origination, title insurance, appraisal, inspections, prepaid taxes/insurance, and various lender fees. Typically 2-5% of the purchase price for the buyer. On a $400k house, that's $8,000-$20,000 ON TOP of your down payment. Many buyers forget to budget for this. Some loan programs allow seller-paid closing costs, which can reduce your cash needed at closing.
The bottom line
The "20% down" rule isn't really a rule — it's a heuristic that made more sense in past decades. Today, the right down payment depends on:
- What loan programs you qualify for
- How much you have available
- What the market is doing
- How long you plan to stay
- What you'd otherwise do with the money
For many buyers, 5-10% down combined with PMI is the right answer — especially in markets where home prices are appreciating. The opportunity cost of waiting to save 20% often exceeds the cost of PMI by a large margin.
For some buyers, 20%+ down is clearly correct — if you have plenty of savings and you'd be sacrificing other priorities to save more is unnecessary.
For a few buyers (military, rural, first-time with specific programs), 0-3% down is the right answer — leveraging programs designed exactly for your situation.
Run your specific numbers. Compare scenarios. The "right" answer is rarely 20% — it's whatever fits your actual financial situation today, not what worked for your parents 30 years ago.