Ask most people what's keeping them from buying a home, and the answer is usually the same: the down payment. Saving tens of thousands of dollars while paying rent feels nearly impossible, especially in expensive markets. But here's what many aspiring homeowners don't realize: the traditional 20% down payment isn't actually required. Depending on your situation, you might be able to buy a home with as little as 3% down—or even nothing at all.
Understanding your true down payment requirements—and the trade-offs involved in different options—can mean the difference between buying a home this year and waiting another decade. Let's cut through the confusion and get to the real numbers.
How Much Do You Actually Need?
The answer depends entirely on your loan type:
Conventional loans require as little as 3% down for first-time buyers (5% for repeat buyers with some programs). On a $300,000 home, that's $9,000 to $15,000—a far cry from the $60,000 that 20% would require. The catch? You'll pay private mortgage insurance until you reach 20% equity.
FHA loans allow 3.5% down with a credit score of 580 or higher. If your score is between 500 and 579, you'll need 10% down. FHA is often the path for buyers with lower credit scores or less savings.
VA loans offer something remarkable: 0% down payment for eligible veterans, active-duty military, and surviving spouses. Combined with no mortgage insurance requirement, VA loans are among the best mortgage products available—if you qualify.
USDA loans also allow 0% down, but they're limited to homes in eligible rural and suburban areas (which cover more territory than you might expect) and borrowers who meet income limits.
The 20% Down Payment: Myth vs. Reality
The idea that you need 20% down to buy a home is one of the most persistent myths in real estate. It comes from a real place—putting 20% down does have genuine benefits—but treating it as a requirement keeps millions of people renting longer than necessary.
Here's what 20% down actually gets you: you avoid private mortgage insurance (PMI), which typically costs 0.5% to 1% of your loan amount annually. On a $270,000 loan (from a $300,000 purchase with 10% down), that's $1,350 to $2,700 per year—$112 to $225 per month. You also get a slightly better interest rate and start with significant equity in your home.
But consider the math another way. If you're saving $500 per month and need $60,000 for 20% down on a $300,000 home, you're looking at 10 years of saving. During those 10 years, home prices might increase 30% or more. The home that costs $300,000 today could cost $390,000 by the time you've saved enough—now you need $78,000 for 20%. Meanwhile, if you'd bought with 5% down ($15,000), you'd have spent those years building equity rather than chasing a moving target.
The average first-time buyer puts down around 7-8%. Repeat buyers average about 17%. Very few buyers actually put down the full 20%.
Understanding Private Mortgage Insurance
PMI exists because lenders see lower down payments as higher risk—you have less skin in the game, making default more likely. PMI protects the lender (not you) if you default. It's the price you pay for borrowing more of the home's value upfront.
How much does PMI cost? Expect 0.5% to 1% of your loan amount annually, though rates vary based on your credit score and loan-to-value ratio. On a $285,000 loan, that's roughly $120 to $240 per month. It's not nothing, but it's also not necessarily a reason to wait years longer to buy.
The good news: conventional PMI goes away. Once you reach 20% equity—through payments, appreciation, or both—you can request cancellation. By law, lenders must automatically terminate PMI when you reach 22% equity based on the original value. Some borrowers pay for PMI for just a few years before eliminating it entirely.
FHA mortgage insurance works differently. If you put less than 10% down, MIP stays for the life of the loan. You'd need to refinance into a conventional loan to eliminate it.
Strategies for Building Your Down Payment
Saving for a down payment requires discipline, but the right strategies can accelerate the process significantly.
Start with a specific target. Use our down payment calculator to determine exactly how much you need for different scenarios. Having a concrete number makes the goal feel achievable and lets you track progress.
Automate everything. Set up automatic transfers from your checking account to a dedicated savings account on payday. If the money never hits your main account, you won't miss it. Even $200 per paycheck adds up to nearly $5,000 per year.
Capture windfalls. Tax refunds, bonuses, gifts, and any unexpected money should go straight to your down payment fund. A single $3,000 tax refund represents months of regular savings.
Consider high-yield savings accounts. While interest rates on savings remain modest, there's no reason to leave money in an account earning 0.01% when alternatives earn 4% or more. On a $20,000 balance, that's the difference between $2 and $800 in annual interest.
Down Payment Assistance Programs
Many buyers don't realize that thousands of down payment assistance programs exist across the country, offered by states, cities, counties, and nonprofits. These programs can provide grants, forgivable loans, or low-interest second mortgages to help cover your down payment and closing costs.
Grants are essentially free money—you receive funds that never need to be repaid. They're competitive and often have income limits, but they're worth pursuing.
Forgivable loans are repaid only if you sell or refinance within a certain period (often 5-10 years). If you stay in the home, the loan is forgiven—making it functionally equivalent to a grant.
Deferred payment loans don't require payments until you sell, refinance, or pay off your first mortgage. They give you breathing room now while deferring the cost.
Programs vary widely by location. Search for "[your state] down payment assistance" or ask your lender about programs they work with. Many programs can be combined with FHA, VA, or conventional loans.
Using Gift Funds
Family members can gift money for your down payment, though the rules vary by loan type. For conventional loans, you'll need to document that the money is a genuine gift (not a loan) through a signed gift letter. The donor may also need to provide bank statements showing they have the funds to give.
FHA loans allow gift funds for the entire down payment from family members. VA and USDA loans don't require down payments, but gifts can cover closing costs.
The key rule: gifts must be documented. Large deposits appearing in your bank statements without explanation will trigger questions from underwriters. Have the gift transferred early enough to appear on at least one statement before your pre-approval application, and keep all documentation.
Don't forget about closing costs—they typically add 2-5% of the loan amount on top of your down payment. When calculating how much you need to save, include both figures. You'll also want to maintain some savings after closing for emergencies and immediate home expenses.