Down Payment Strategies: How Much Should You Put Down?

The 20% down payment is the most repeated piece of mortgage advice in America, and for many first-time buyers it is also the wrong one. It has become a mantra that people repeat without understanding the tradeoffs behind it. This guide breaks down every option — 0%, 3%, 3.5%, 10% and 20% — with the real monthly cost of each, so you can choose based on your own numbers instead of a slogan.

Why 20% became the default

The 20% number has one origin: it is the down payment that removes private mortgage insurance, or PMI. PMI is a monthly fee you pay to protect the lender — not you — in case you stop making payments and the home sells for less than you owe. Once your equity reaches 20%, the lender's risk drops enough that they no longer require the insurance.

That is the entire reason. Twenty percent is not a law, it is not a sign of financial virtue, and it is not always the cheapest path. It is simply the point where PMI disappears. Whether it is the right move depends on your savings, your rate, your market and your timeline — all of which vary from buyer to buyer.

Your options, at a glance

Each option is a real, widely used path. The 0% VA and USDA loans are some of the best deals in the market for the people who qualify. The 3% conventional loan is a common first-time-buyer route. The 3.5% FHA loan serves buyers with lower credit. Ten percent is a middle ground. And 20% is the traditional gold standard.

What PMI actually costs

PMI is priced as a percentage of your loan each year, and that percentage depends on your credit score and your loan-to-value ratio. A good rule of thumb is 0.5% to 1.5% of the loan amount annually. On a $350,000 loan with 5% down, that works out to roughly $150 to $300 a month.

The important detail is that PMI is not permanent. On a conventional loan, it cancels automatically once your loan balance drops to 78% of the original home value, and you can request cancellation at 80%. You can reach that point two ways: by paying the loan down over time, or by the home appreciating. If you put down 5% and your home appreciates 15% in a few years, you may be able to get PMI removed early through a new appraisal. FHA is different — its mortgage insurance premium, or MIP, lasts for the life of the loan on most loans with less than 10% down, which is a meaningful long-term cost to factor in.

The case for a smaller down payment

A smaller down payment is not automatically a compromise; sometimes it is the smarter financial move. The strongest case is when home prices and rents are rising faster than you can save. If you put down 3% today and the home appreciates 5% a year, you are building equity from the start, while a renter trying to save 20% watches both prices and rents climb out of reach. In many markets, the biggest risk for a first-time buyer is not PMI — it is being priced out entirely.

The second reason is liquidity. A smaller down payment keeps cash in your pocket for an emergency fund, moving costs, and the inevitable first-year repairs. A home with no savings cushion is one furnace failure away from real trouble. It can be wiser to buy with 5% down and keep a healthy cash reserve than to drain every account to hit 20% and be left with nothing for surprises.

The third reason is that PMI may be cheaper than you think, especially with strong credit. If PMI is $120 a month but waiting two years to save 20% means paying $1,800 a month in rent, the "cost" of PMI looks different in context. Run the full comparison before assuming 20% is required.

The case for 20%

The 20% down payment still has real advantages, and they are worth taking seriously when you have the cash. First, no PMI, which lowers your monthly payment permanently. Second, instant equity — you own a fifth of the home on day one, which protects you if prices dip and gives you options if you need to sell or borrow against the home.

Third, a lower loan means less interest over time, because you are borrowing less. Fourth, a 20% down payment makes your offer stronger in a competitive market; sellers know your financing is more likely to close. And fifth, your monthly payment is simply smaller, which leaves more room in your budget for everything else.

The catch is that 20% is a lot of money. On a $350,000 home, it is $70,000 in cash, plus closing costs on top. If reaching that number means draining your savings or delaying the purchase by years, the "benefit" may not be worth the cost. The right answer is not always 20% — it is the amount that gets you a comfortable payment without leaving you cash-poor.

A worked example: $350,000 home, three down payments

Let's put numbers on it. A buyer is looking at a $350,000 home at a 6.5% rate, and is deciding between 5%, 10% and 20% down.

The 20% path saves about $500 a month versus 5% down, but it requires an extra $52,500 in cash at closing. That is the tradeoff in a nutshell: $52,500 more upfront, or roughly $500 more a month. Whether the monthly savings are worth the upfront cash depends on how long you will stay and what else you could do with the money.

Frequently asked questions

Is it bad to put less than 20% down?

No. Most first-time buyers put down between 3% and 10%, and they simply pay PMI until they reach 20% equity. It is a normal, widely used path.

When does PMI go away?

On conventional loans, PMI cancels automatically at 22% equity and can be requested at 20%. FHA MIP lasts the life of the loan on most loans under 10% down.

Can I buy a house with no down payment?

Yes, with a VA loan (veterans) or USDA loan (eligible rural areas). Otherwise, conventional loans start at 3% and FHA at 3.5%.

What down payment do I need for the best rate?

Twenty percent generally gets the best pricing because it removes PMI, but the rate itself is driven more by credit score. A 760 score with 10% down often beats a 680 score with 20% down.

Choose based on your numbers

The right down payment is the one that balances three things: a monthly payment you can comfortably afford, a cash reserve that survives closing and surprises, and a timeline that makes the math work. Plug different down payments into our mortgage calculator and watch the payment and PMI change in real time. The answer is in your numbers, not in a slogan.