Down Payment Options: How Much Do You Really Need?
20% isn't required. Compare low and no down payment loans, mortgage insurance, assistance programs, and gift rules.
Many would-be buyers believe they need 20% down. In reality, most programs allow much less, and many buyers put down far less than 20%. The trade-off is usually mortgage insurance and a larger loan balance. Here is how to weigh your options.
Minimum down payments by loan type
- Conventional: as low as 3% for eligible borrowers through programs backed by Fannie Mae and Freddie Mac; 5% is a common minimum otherwise.
- FHA: 3.5% with a credit score of 580 or higher; 10% with scores between 500 and 579.
- VA: typically 0% for eligible service members and veterans.
- USDA: 0% for eligible properties and household incomes.
- Jumbo: often 10% to 20% or more.
The pros and cons of putting 20% down
Putting 20% down on a conventional loan avoids PMI, lowers your monthly payment, gives you an equity cushion if prices dip, and can make your offer more attractive. The downside is time: saving 20% can take years, during which prices and rents may rise. It can also leave you with little cash for emergencies.
Understanding mortgage insurance
With less than 20% down on a conventional loan, you will usually pay private mortgage insurance. Under the federal Homeowners Protection Act, you can request PMI cancellation when your balance reaches 80% of the home's original value, and it generally ends automatically at 78%, provided you're current on payments. FHA mortgage insurance works differently and often lasts for the life of the loan unless you put at least 10% down, in which case it lasts 11 years; many FHA borrowers refinance into a conventional loan later to remove it.
Where down payment money can come from
- Savings: lenders typically want to see funds seasoned in your account, or documented sources for large deposits.
- Gifts: many loan programs allow gifts from family members, documented with a gift letter.
- Down payment assistance: grants and forgivable or deferred loans from state housing finance agencies, cities, and nonprofits.
- Retirement accounts: some 401(k) plans allow loans, and IRAs allow up to $10,000 of penalty-free withdrawals for first-time buyers, but both reduce retirement savings and carry tax considerations.
- Employer programs: some employers offer housing assistance.
So how much should you put down?
A sensible approach is to put down enough to get a payment you are comfortable with and a competitive rate, while keeping an emergency fund intact. Compare scenarios with our mortgage calculator, including PMI, and ask lenders for Loan Estimates at different down payment levels.
This article is for general educational purposes and is not financial, legal, or tax advice. See our disclaimer.