How Much Down Payment Do You Need?
The 20 percent rule is a myth for most first-time buyers. Here is what each loan type actually requires, what smaller down payments cost you, and how to decide your number.
Conventional loans allow 3 to 5 percent down, FHA 3.5 percent, VA and USDA zero. Below 20 percent on conventional you pay PMI of 0.5 to 1.5 percent yearly until 20 percent equity. Bigger down payments lower the payment, the rate, and the income you need.
Minimums by loan type
Conventional: 3 percent for qualified first-time buyers, 5 percent otherwise. FHA: 3.5 percent with a 580 credit score. VA: 0 percent for eligible service members and veterans. USDA: 0 percent in eligible rural areas.
These are minimums, not recommendations. A 3 percent down payment on $350,000 is $10,500, but closing costs add another 2 to 5 percent of the price, so budget $17,500 to $28,000 in total cash to close.
The true cost of a small down payment
Below 20 percent down on conventional, PMI runs roughly 0.5 to 1.5 percent of the loan amount per year. On a $330,000 loan at 1 percent, that is $275 a month, $3,300 a year, until you hit 20 percent equity and can request removal.
Small down payments also mean a bigger loan at the same rate, so you pay more interest every month for years. The payment difference between 5 and 20 percent down on the same house often exceeds $400 a month.
How to pick your number
Do not drain your emergency fund for a bigger down payment. Keep 3 to 6 months of expenses liquid after closing; houses generate surprise bills on schedule.
If choosing between 10 and 20 percent, compare the PMI plus extra interest against what the extra cash earns elsewhere. Often the 20 percent wins if you have it without gutting savings. If the choice is 5 percent now versus waiting two years for 20, buying sooner usually wins if prices and rents keep rising.
Skip the arithmetic
Test different down payments with the free home affordability calculator.
Down payment questions
Is 20 percent down still required?
About 20 percent down remains the threshold for skipping PMI on conventional loans, which is why the number persists. But low-down-payment programs have bought millions of homes. The real question is what down payment leaves you with a comfortable payment and intact savings.
Can gift money count as a down payment?
Conventional, FHA, and VA loans all allow gift funds from family with a signed gift letter stating no repayment is expected. The lender will paper-trail the transfer. What you cannot do is borrow the down payment secretly; that debt would count in your ratios anyway.