The “20% down” rule is one of the most persistent myths in homebuying. It comes from the threshold at which private mortgage insurance (PMI) is no longer required on conventional loans — not from any universal standard for responsible homebuying. Many buyers are ready to purchase at 3%, 3.5%, or 5% down, and waiting to save 20% often costs more in lost appreciation than PMI would have.
Minimum Down Payments by Loan Type
| Loan type | Minimum down payment | Notes |
|---|---|---|
| Conventional (standard) | 5% | Most conventional programs |
| Conventional (HomeReady/Home Possible) | 3% | Income limits apply |
| FHA | 3.5% | 580+ credit score; 10% for 500–579 |
| VA | 0% | Veterans/active military; no PMI ever |
| USDA | 0% | Rural areas; income limits apply |
| Jumbo | Typically 10–20% | Lender-specific; varies widely |
For most buyers, the realistic range is 3%–20%. Where you land in that range depends on your savings, your income, and what you prioritize.
What PMI Actually Costs
PMI is required on conventional loans when your down payment is less than 20%. It’s priced annually as a percentage of the loan amount, added to your monthly payment.
Typical PMI cost ranges: 0.5%–1.5% of the loan amount annually, depending primarily on your credit score and LTV ratio.
| Loan amount | PMI rate | Monthly PMI cost |
|---|---|---|
| $350,000 | 0.7% | $204 |
| $400,000 | 0.8% | $267 |
| $450,000 | 0.9% | $338 |
PMI is not permanent on conventional loans. It’s required until you reach 20% equity and can be canceled by request at 80% LTV. Many buyers reach this point within 5–8 years through payments and appreciation — making PMI a temporary cost, not a lifetime expense.
FHA mortgage insurance is different: the structure includes a 1.75% upfront premium (added to the loan) plus an ongoing annual premium (~0.55%) that lasts the life of the loan if you put less than 10% down. For buyers who can qualify for conventional financing, this is often a reason to use a conventional loan instead of FHA even with a small down payment.
The 20% Down Argument — and Its Limits
Why 20% down has real advantages:
- Eliminates PMI immediately
- Lower monthly payment and total interest paid
- Stronger offer in competitive markets
- Better rate pricing in some cases (lower LTV improves LLPA tiers)
Why waiting for 20% isn’t always right:
- Home prices may rise while you save, requiring a larger dollar amount
- You stop building equity through payments while you rent
- Your savings may generate lower returns than home appreciation in your market
- If PMI costs $250/month and you reach cancellation in 6 years, you’ve paid $18,000 in PMI — which you need to compare against what home appreciation you’d have captured by buying earlier
In markets where homes appreciate 4%–6% annually, buyers who wait for 20% often pay more in total than those who bought earlier with PMI and canceled it once equity was established.
Considerations Beyond the Minimum
Keep reserves. Your down payment isn’t the only cash cost. Closing costs (2%–5% of the loan amount), moving costs, and immediate home repairs all require liquid funds. Stretching to the absolute maximum down payment while depleting reserves is a financial vulnerability.
Down payment assistance programs. State and local housing finance agencies offer grants and low-interest second loans to qualified first-time buyers. These programs can supplement a buyer’s savings to reach a meaningful down payment without depleting reserves. Availability and income limits vary by location.
Gift funds. Down payment funds can come from a family member or other eligible donor, documented with a gift letter confirming the funds don’t require repayment. Lenders have specific requirements for sourcing and documentation.
Points vs. down payment tradeoff. Some buyers consider using cash reserves to buy down their mortgage rate (discount points) rather than increasing the down payment. Whether this is better depends on your break-even calculation for the rate reduction vs. the upfront cost.
Running the Scenarios
Use the Down Payment Calculator on LendingPulse to compare:
- Monthly payment at different down payment amounts
- PMI at each down payment level
- How long before you’d reach the PMI cancellation threshold
- Total cost over different holding periods
For the full affordability picture — including how down payment interacts with your income and DTI — the Affordability Calculator shows your maximum purchase price under different down payment scenarios. See also How Much House Can I Afford? for the PITI and DTI framework lenders use to set your ceiling.