Down Payment: How Much Do You Really Need?
The biggest myth in home buying is that you need 20% down. The truth: most first-time buyers put down 6–7%, and some loans allow as little as 3% — or even 0%.
Here's how much you actually need, and what each option costs you.
Why 20% Became the "Magic Number"
The 20% rule exists for one reason: PMI. If your down payment is less than 20% of the home price, most lenders require you to buy private mortgage insurance (PMI) — a monthly fee that protects them if you default, but that you pay for.
Hit 20% down, and PMI disappears. That's why 20% is treated as the threshold — not a requirement.
Real Numbers: A $300,000 Home at Different Down Payments
| Down payment | Amount | Loan amount | PMI? |
|---|---|---|---|
| 3% | $9,000 | $291,000 | Yes |
| 5% | $15,000 | $285,000 | Yes |
| 10% | $30,000 | $270,000 | Yes |
| 20% | $60,000 | $240,000 | No |
What Does PMI Actually Cost?
PMI typically runs 0.5% to 1% of the loan amount per year. On a $285,000 loan (5% down), that's:
- 0.7% × $285,000 = $1,995 per year, or about $166/month
That's nearly $2,000 a year added to your housing costs — a real price for a smaller down payment. The good news: PMI drops off automatically once you reach 20% equity (and you can often remove it earlier by paying down the loan or if your home appreciates).
💡 Compare scenarios: Use the RateLedger mortgage calculator to see how different down payments change your monthly payment, PMI, and total interest.
Low-Down-Payment Loan Programs
If 20% is out of reach, you still have options:
- Conventional 97 — as little as 3% down for qualified buyers.
- FHA loans — as little as 3.5% down, popular with first-time buyers (but with upfront and annual mortgage insurance).
- VA loans — 0% down for eligible veterans and service members.
- USDA loans — 0% down for qualifying rural and suburban buyers.
The Trade-Off: Small Down vs. Big Down
A bigger down payment gives you:
- A smaller loan (and smaller payment)
- No PMI (at 20%+)
- Better rates and easier approval
- Instant equity in the home
A smaller down payment gives you:
- A faster path to homeownership
- More cash kept for emergencies, repairs, and closing costs
Neither is "wrong" — but you should understand the monthly cost of each before deciding.
Frequently Asked Questions
Do I really need 20% down to buy a house? No. Many buyers put down 3–10% using programs like Conventional 97, FHA (3.5%), VA (0%), or USDA (0%). The trade-off is usually PMI and a higher monthly payment.
What is PMI and when does it go away? Private mortgage insurance protects the lender when your down payment is under 20%. It's typically removed automatically once your loan balance drops to 80% of the home's value, or you can request removal earlier if you've built enough equity.
Is it better to put 20% down or invest the difference? It depends on your mortgage rate vs. expected investment returns. Paying 20% avoids PMI and lowers your payment; investing the difference can earn more — but comes with market risk.
How does my down payment affect my interest rate? A larger down payment lowers the lender's risk, which often earns you a lower interest rate and better terms.
See how your down payment changes everything. Open the RateLedger mortgage calculator now.