Part of our guide to How Much House Can You Actually Afford?
The 20% figure is so widely repeated that many people who could buy a house believe they cannot. It is a real threshold, but not the one most people think.
20% is not a minimum. It is the point at which conventional loans stop requiring private mortgage insurance. Below it you can still buy — conventional programmes go to 3%, FHA to 3.5%, and VA and USDA to zero for eligible borrowers. The catch worth knowing: PMI on a conventional loan falls off; FHA mortgage insurance usually does not.
The actual minimums
| Loan type | Minimum down | Who it suits |
|---|---|---|
| Conventional | as low as 3% | Buyers with reasonable credit |
| FHA | 3.5% at the standard credit threshold | Buyers with lower credit scores |
| VA | 0% | Eligible service members and veterans |
| USDA | 0% | Eligible buyers in designated rural areas |
| Conventional, no PMI | 20% | Buyers who have it available |
Eligibility rules, credit thresholds and loan limits attach to each, and they change. Check current terms with a lender rather than relying on any article, including this one.
What 20% actually buys you
Three things, all real:
No private mortgage insurance, which is a monthly cost that buys the lender protection, not you.
A smaller loan, so a lower payment and less total interest.
Sometimes a better rate, since lower loan-to-value is less risky to the lender.
Those are genuine benefits. They are not worth achieving at any cost, which is the part the advice usually omits.
PMI, and the crucial difference between loan types
This distinction matters more than almost anything else on this page.
On a conventional loan, PMI ends. Under US law you may request cancellation at 80% loan-to-value based on the original amortisation schedule, and the lender must automatically terminate it at 78%, provided you are current on payments. So PMI on a conventional loan is a temporary cost with a defined end.
On most FHA loans, it does not. For FHA loans made with less than 10% down, the mortgage insurance premium runs for the life of the loan. The only ways out are refinancing into a conventional loan or selling.
That single difference can outweigh a lower starting rate over the years you hold the loan. If you are comparing FHA against a low-down-payment conventional option, compare the total cost including how long each insurance lasts — not the monthly payment in year one.
Emptying your savings to reach 20% is frequently the wrong move.
A house generates expenses that a rental does not — the water heater, the roof, the HVAC system. Buying with nothing left means the first significant repair goes on a credit card at consumer interest rates, which costs more than the PMI you avoided.
A smaller down payment plus an intact emergency fund is usually the stronger position. PMI is a known monthly cost with a defined end; a repair you cannot pay for is neither.
What else the money has to cover
The down payment is not the whole cash requirement, and budgeting for it alone is a common error:
- Closing costs, a separate sum — see what closing costs actually pay for
- Prepaid taxes and insurance deposited into escrow at closing
- The home inspection, paid before closing
- Moving costs
- Immediate repairs, since inspections routinely find something
- The emergency fund that survives all of the above
Where the money can come from
Gift funds from family are permitted by most programmes, with documentation showing it is a gift rather than a loan.
Down payment assistance programmes exist in most states, often aimed at first-time buyers, and are widely under-used. Your state housing finance agency is the place to look.
Retirement accounts allow certain withdrawals for first-time purchase, though the long-term cost of removing money from tax-advantaged growth is real and worth weighing carefully.
How to decide your number
- Find out which programmes you qualify for — VA and USDA eligibility in particular are frequently overlooked
- Check your state's assistance programmes
- Work out the full cash requirement, not just the down payment
- Decide what emergency fund you keep, and treat it as untouchable
- Compare total cost over your expected holding period, including how long each loan's insurance lasts
- Then put down what remains, not the largest number you can reach
For the affordability picture this sits inside, see how much house you can actually afford.
This is general information, not financial advice — see our disclaimer.
Frequently asked questions
Do I really need 20% down?
No. Twenty percent is the point at which conventional loans stop requiring private mortgage insurance — it is not a minimum to buy. Several programmes allow far less.
What is the lowest possible down payment?
Zero, for eligible borrowers using VA or USDA loans. Conventional programmes go as low as 3% for qualifying buyers, and FHA is 3.5% at the standard credit threshold.
When does PMI stop?
On conventional loans, you may request cancellation at 80% loan-to-value, and the lender must terminate it automatically at 78% based on the original schedule, provided payments are current.
Is FHA mortgage insurance the same?
No, and the difference is significant. On most FHA loans made with less than 10% down, the mortgage insurance premium lasts the life of the loan and only ends by refinancing or selling.
Should I put down as much as possible?
Not if it leaves you without an emergency fund. Owning a home creates repair bills, and having no cash to meet them is a worse position than carrying mortgage insurance.
Sources
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