Overview
The 20% down payment myth prevents many people from buying homes they could otherwise afford. Most buyers today put down 3-10%. Understanding the actual requirements, the cost of PMI, and the opportunity cost of a large down payment helps you make the optimal down payment decision.
Down payment options by loan type and PMI impact
| Down Payment | Loan Type Available | PMI Required? | Best For |
|---|---|---|---|
| 0% | VA (veterans), USDA (rural) | No (VA funding fee instead) | Eligible veterans; rural buyers |
| 3% | Conventional (Fannie/Freddie) | Yes | First-time buyers with limited cash |
| 3.5% | FHA loan | Yes (MIP, life of loan with <10% down) | Buyers with credit 580-620 |
| 5-10% | Conventional | Yes (cancellable at 20%) | Most first-time buyers |
| 20% | Any loan type | No | Buyers with sufficient savings who want no PMI |
| 20%+ | Any loan type | No | Strong financial position; want lowest payment |
Conventional PMI can be canceled once you reach 20% equity through payments and/or home appreciation. FHA MIP (for loans with under 10% down) must be paid for the life of the loan -- motivating many FHA borrowers to refinance to conventional once they reach 20% equity. PMI is a temporary cost, not a permanent penalty.
Key Points
- VA and USDA offer true 0% down payment options for eligible buyers -- no PMI
- FHA requires only 3.5% down but adds MIP (mortgage insurance premium) for the loan’s life
- Conventional loans with 3-19% down require PMI until 20% equity is reached
- 20% down eliminates PMI, reduces monthly payment, and typically earns better rates
- Down payment assistance programs exist in many states and cities -- research local options
Calculate Your Home Affordability
Use the home affordability calculator to see your maximum home price based on your income, debts, down payment, and current mortgage rates.
Calculate How Much Home You Can Afford
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