How Much Down Payment Do I Need?

The old rule of "you need 20% down" is not a hard requirement anymore — it has not been for years. Real minimums are far lower, and some buyers put down nothing at all. But the down payment is a trade-off with real consequences: less cash down means a bigger loan, a higher monthly payment, and usually mortgage insurance. Here is what you actually need, by loan type, and what each level costs you.

Minimum down payments by loan type

The minimum depends entirely on the loan program you qualify for:

Conventional loans allow 3% down for first-time buyers through programs like HomeReady and Home Possible, with a 620 minimum credit score. FHA requires 3.5% with a 580 score. VA and USDA loans allow true 0% down for eligible veterans and rural-area buyers. On a $400,000 home, 3% is $12,000 and 3.5% is $14,000 — far from the $80,000 the old 20% rule implied.

The 20% threshold and PMI

So why does everyone still quote 20%? Because 20% is the line where private mortgage insurance disappears. Put down less than 20% and you pay PMI — typically 0.5% to 1.5% of the loan per year — added to your monthly payment until you reach 20% equity.

On a $380,000 loan (5% down on $400,000), PMI might run $160 to $475 a month. That is a real, recurring cost with zero benefit to you — it protects the lender. Twenty percent down is not a requirement; it is the price threshold where the loan gets cheaper.

What each down payment level really costs

Assume a $400,000 home at 6.5% for 30 years:

The 3%-down buyer needs $68,000 less cash up front but pays roughly $500 to $900 more each month once PMI is included, and far more in total interest over the life of the loan. The 20%-down buyer ties up a lot of cash but owns the cheapest version of the loan.

The trade-off: cash now vs cost later

The decision is rarely about what you need — it is about what you can afford to tie up. A smaller down payment gets you into the home years sooner, which matters if home prices are rising faster than you can save. A larger down payment lowers your payment, removes PMI, and gives you instant equity that cushions against a market dip.

A useful frame: your down payment is a guaranteed return. Every extra dollar down avoids 6.5% interest on that dollar for 30 years — effectively a risk-free 6.5% return. That is hard to beat anywhere else. The counter-argument is liquidity: money locked in home equity is hard to access quickly, and an emergency fund should come first.

How to decide your number

Start with two non-negotiables: keep a full emergency fund separate from the down payment, and keep your total PITI under 28% of income. Within those bounds, the sweet spot for most buyers is 10% to 20% down — enough to shrink the loan and reduce PMI, without draining every account.

If you can reach 20%, do it. If you cannot without wiping out your savings, put down what you can afford, accept PMI for a few years, and plan to remove it once your equity grows. The worst outcome is not "less than 20% down" — it is buying with no emergency fund left.

Frequently asked questions

Do I really need 20% down?

No. You can buy with as little as 0% (VA/USDA), 3% (some conventional), or 3.5% (FHA). Twenty percent only matters because it removes PMI.

What is the minimum down payment for a first-time buyer?

3% through conventional HomeReady or Home Possible, or 3.5% through FHA. VA and USDA offer 0% for eligible buyers.

Is it better to put 20% down or keep cash?

If you have a separate emergency fund, 20% down is usually the better financial move because it avoids PMI and interest. If 20% would drain your savings, put down less and keep the cushion.

Does a bigger down payment lower my interest rate?

It can, slightly, because you are a lower-risk borrower — and it definitely lowers your payment and removes PMI. The bigger effect is on the loan size and insurance, not just the rate.

Compare 3%, 10% and 20% down side by side on the HomeMath mortgage calculator — the payment and PMI update instantly.