The 20% down payment is the most persistent myth in home buying. It stops renters from exploring homeownership, convinces buyers they need to save for years longer than necessary, and ignores the fact that the average first-time buyer puts down just 6% to 8% of the purchase price.
According to the National Association of Realtors 2025 Profile of Home Buyers and Sellers, the median down payment for first-time buyers was 8%, and for repeat buyers it was 19%. On a $350,000 home, that is $28,000 for a first-time buyer — a far cry from the $70,000 that the 20% myth suggests.
Understanding your actual down payment options, how each amount affects your monthly costs, and where to find assistance can be the difference between buying this year and waiting another five.
Minimum Down Payments by Loan Type
Different mortgage programs have different minimum requirements. Here is what each loan type requires:
Conventional Loans (3% to 5% minimum)
Conventional loans backed by Fannie Mae and Freddie Mac require as little as 3% down for first-time buyers through programs like HomeReady (Fannie Mae) and Home Possible (Freddie Mac). Standard conventional loans typically require 5% down.
On a $350,000 home: 3% down = $10,500. 5% down = $17,500. However, any down payment below 20% triggers Private Mortgage Insurance (PMI), which adds $100 to $300 per month depending on your loan amount and credit score.
FHA Loans (3.5% minimum)
FHA loans, insured by the Federal Housing Administration per HUD guidelines, require 3.5% down with a credit score of 580 or higher. With a credit score between 500 and 579, the minimum increases to 10%.
On a $350,000 home: 3.5% down = $12,250. FHA loans charge two types of mortgage insurance: an upfront premium of 1.75% of the loan amount (which can be rolled into the loan) plus an annual premium of 0.55% to 1.05% of the loan balance paid monthly. Unlike conventional PMI, FHA mortgage insurance cannot be removed for loans originated after June 2013 (you would need to refinance into a conventional loan to eliminate it).
VA Loans (0% down)
VA loans, guaranteed by the Department of Veterans Affairs, require zero down payment for eligible veterans, active-duty service members, and qualifying surviving spouses. This is the single most valuable mortgage benefit available to military families.
On a $350,000 home: 0% down = $0. VA loans also have no monthly mortgage insurance premiums, though they charge a one-time funding fee of 1.25% to 3.3% of the loan amount depending on your down payment, service history, and whether it is your first VA loan use. The funding fee can be rolled into the loan.
USDA Loans (0% down)
USDA loans, backed by the U.S. Department of Agriculture, offer zero-down financing for homes in eligible rural and suburban areas. Income limits apply — generally, your household income cannot exceed 115% of the area median income.
On a $350,000 home in an eligible area: 0% down = $0. USDA loans charge a 1% upfront guarantee fee plus a 0.35% annual guarantee fee. These fees are lower than FHA mortgage insurance, making USDA loans attractive for eligible buyers.
How Your Down Payment Affects Monthly Costs
The down payment you choose creates a cascading effect on your monthly expenses. Here is a side-by-side comparison on a $350,000 home at 6.5% interest for 30 years:
**3% down ($10,500)**: Loan amount $339,500. Monthly principal and interest: $2,146. Estimated PMI: $220/month. Total monthly housing cost (P&I + PMI): approximately $2,366.
**5% down ($17,500)**: Loan amount $332,500. Monthly P&I: $2,102. Estimated PMI: $195/month. Total: approximately $2,297.
**10% down ($35,000)**: Loan amount $315,000. Monthly P&I: $1,991. Estimated PMI: $155/month. Total: approximately $2,146.
Run the numbers for your situation: Use our free PMI calculator to estimate your private mortgage insurance cost and see when it drops off.
**20% down ($70,000)**: Loan amount $280,000. Monthly P&I: $1,770. No PMI. Total: approximately $1,770.
The difference between 3% and 20% down is $596 per month — but it requires $59,500 more in upfront cash. The question is whether that $59,500 is better used as a down payment or invested elsewhere.
Use our PMI calculator to estimate your exact PMI costs at different down payment levels, and our affordability calculator to see how the monthly cost fits your budget.
The 20% Down Payment: When It Makes Sense (and When It Does Not)
Putting 20% down eliminates PMI, reduces your monthly payment, and gives you immediate equity. But it is not always the optimal financial decision.
When 20% makes sense
**You have the cash available without depleting emergency reserves.** Financial advisors generally recommend maintaining 3-6 months of expenses in savings after your down payment and closing costs. If you can put 20% down and still have a comfortable emergency fund, it is a strong choice.
**You are buying in an expensive market.** On a $700,000 home, PMI at 5% down could cost $350+ per month. The math favors a larger down payment when PMI costs are high.
**You want the lowest possible monthly payment.** A larger down payment means a smaller loan, which means lower monthly payments and less total interest over the life of the loan.
When less than 20% makes sense
**Home prices are rising faster than you can save.** If homes in your market are appreciating at 5-8% per year and you are saving $1,000 per month, the math may never work in your favor by waiting. The home that costs $350,000 today costs $367,500 next year at 5% appreciation.
**You would deplete your savings.** Buying a home with zero reserves is risky. If the furnace breaks or you lose your job three months after closing, you need cash available.
**You can invest the difference at a higher return.** If your mortgage rate is 6.5% and you expect your investments to return 8-10% over time, the mathematical argument favors a smaller down payment and investing the rest. However, this comparison ignores risk — mortgage interest is a guaranteed cost, while investment returns are uncertain.
**PMI costs are manageable and temporary.** According to MGIC (one of the largest PMI providers), the average PMI payment is removed after 4-7 years as the homeowner builds equity through payments and home appreciation. PMI is not forever — it is a bridge to homeownership.
Down Payment Assistance Programs
Thousands of programs exist nationwide to help buyers with down payments and closing costs. According to the National Council of State Housing Agencies (NCSHA), every state has at least one down payment assistance program, and many cities and counties offer additional programs.
**State housing finance agency programs** are available in all 50 states. These typically offer grants or low-interest loans for down payment and closing costs. Income limits apply and vary by state. Examples include CalHFA in California, SONYMA in New York, and IHDA in Illinois.
**Federal programs** include the FHA's 3.5% down option, VA's 0% down for veterans, and USDA's 0% down for rural areas. HUD also maintains a list of approved counseling agencies that can help you find local assistance programs.
**Employer-assisted housing programs** are offered by some large employers as a benefit. These may include forgivable loans, matching funds, or direct grants toward a down payment.
**Gift funds** are allowed by most loan programs. Conventional loans allow gifts from family members for all or part of the down payment (with a gift letter confirming the funds are not a loan). FHA loans accept gifts from family, employers, and charitable organizations. VA loans accept gifts from virtually anyone.
How to Save for a Down Payment
If you need to build your down payment fund, these strategies can accelerate the timeline:
**Open a dedicated high-yield savings account.** Separating your down payment savings from your regular checking account reduces the temptation to spend it. High-yield savings accounts currently offer 4-5% APY, according to Bankrate's national survey.
**Automate your savings.** Set up automatic transfers from each paycheck to your down payment account. Treating the transfer like a bill payment makes it consistent.
**Reduce your largest expenses.** Housing, transportation, and food are typically the three largest spending categories. Even temporary reductions (downsizing your apartment, driving a less expensive car, cooking more) can dramatically accelerate savings.
**Use windfalls strategically.** Tax refunds, work bonuses, and cash gifts can boost your down payment fund significantly. The average federal tax refund in 2025 was approximately $3,100, according to IRS data.
**Consider a side income.** Freelancing, gig work, or selling unused items can generate additional savings. Directing 100% of side income to your down payment fund keeps you focused.
Down Payment vs Closing Costs: Total Cash Needed
Your down payment is not the only cash you need at closing. Closing costs typically add 2% to 5% of the purchase price. Here is the total cash outlay at different down payment levels on a $350,000 home (assuming 3% closing costs = $10,500):
- 3% down: $10,500 + $10,500 closing costs = **$21,000 total**
- 5% down: $17,500 + $10,500 = **$28,000 total**
- 10% down: $35,000 + $10,500 = **$45,500 total**
- 20% down: $70,000 + $10,500 = **$80,500 total**
The gap between 3% and 20% in total cash needed is $59,500 — nearly $60,000. For many buyers, that difference represents 3-5 additional years of saving. When home prices are rising 4-6% annually, waiting to save 20% can actually make homeownership more expensive in total, because the home price has increased more than the amount you saved.
The right down payment amount depends on your specific financial situation. Use our affordability calculator to model different scenarios and find the amount that balances a comfortable monthly payment with a realistic savings timeline.