Do You Really Need a Down Payment to Buy a House

Published on October 29, 20269 minute read

Most mortgages require a down payment, but the amount varies widely—and some loans require none at all

You do not need to put down 20 percent to buy a house. That number became famous because it avoids private mortgage insurance (PMI), a monthly fee lenders charge when you borrow more than 80 percent of the home's price. But PMI exists precisely because lenders will lend to people who put down less. Depending on the loan type, your credit history, and your income, you can buy a house with 3 percent down, 5 percent down, or in some cases nothing down at all.

The trade-off is straightforward: a smaller down payment means a larger monthly mortgage payment (because you are borrowing more), plus PMI costs if you put down less than 20 percent. A larger down payment means lower monthly payments and no PMI, but it takes longer to save. The right choice depends on whether you can afford the monthly cost and whether keeping cash in savings matters more to you than owning sooner.

Key Takeaways

Conventional mortgages typically require 3 to 20 percent down, while FHA loans require 3.5 percent and VA loans (for military members) require zero percent.
Private mortgage insurance (PMI) is a monthly fee added to your payment when you put down less than 20 percent on a conventional loan, and it stays until you reach 20 percent equity.
Your credit score, debt-to-income ratio, and savings history affect whether lenders will approve you for a low-down-payment loan and what interest rate you receive.
The monthly cost difference between a small down payment and a large one can be hundreds of dollars, so calculate both scenarios before deciding.
Down payment assistance programs exist through nonprofits, employers, and some state and local governments, though availability and rules vary by location.

How down payment size affects your monthly payment and total cost

A smaller down payment means you borrow more money, which raises your monthly mortgage payment. On a $300,000 house, putting down 3 percent ($9,000) instead of 20 percent ($60,000) means borrowing an extra $51,000. At a 7 percent interest rate over 30 years, that difference adds roughly $340 to your monthly payment before PMI is included.

PMI typically costs between 0.5 and 1.5 percent of the loan amount per year, paid monthly. On a $291,000 loan (the $300,000 house minus your $9,000 down payment), PMI might run $120 to $360 per month. Combined with the higher base payment, you could pay $400 to $500 more each month than someone who put 20 percent down—even though you own the same house.

PMI does not build equity; it is pure insurance for the lender. It stays on your loan until you reach 20 percent equity through a combination of payments and home value increase. If you put down 3 percent and the home appreciates, you may reach 20 percent equity in 5 to 10 years, at which point you can request PMI removal. If the home value stays flat or drops, it takes longer.

Loan types and their down payment requirements

Conventional mortgages (loans not backed by the government) usually require 3 to 20 percent down, depending on the lender and your financial profile. The lower your credit score or the higher your debt, the more you may need to put down. Some lenders require 5 or 10 percent minimum even if you have good credit, so shop around.

FHA loans (backed by the Federal Housing Administration) require a minimum 3.5 percent down payment and are designed for first-time buyers or people with lower credit scores. FHA loans charge mortgage insurance regardless of down payment size, and that insurance stays for the life of the loan if you put down less than 10 percent. If you put down 10 percent or more, FHA insurance drops after 11 years.

VA loans (for military members, veterans, and some surviving spouses) require zero percent down. The Department of Veterans Affairs backs the loan, so lenders accept no down payment. VA loans do not require PMI, though they do charge a one-time funding fee (usually 1 to 3.3 percent of the loan amount) that can be rolled into the mortgage.

USDA loans (for rural properties) also require zero percent down for borrowers who meet income limits. Like VA loans, they do not require PMI but do charge a may provide fee, typically around 1 percent of the loan amount.

What lenders look at when you put down less than 20 percent

Lenders use three main measures to decide whether to approve a low-down-payment loan and what rate to offer. Your credit score shows your history of paying bills on time; most lenders want 620 or higher for conventional loans, though 740 or higher gets better rates. Your debt-to-income ratio (total monthly debt payments divided by gross monthly income) should usually be 43 percent or lower. Your savings and employment history matter too—lenders want to see that you have held your job for at least two years and have reserves left after closing.

If your credit score is below 640 or your debt-to-income ratio is above 50 percent, conventional lenders may decline you or require a larger down payment. FHA loans are more flexible on credit (some lenders accept 580 to 600) but charge higher insurance costs. If you are near the edge of approval, paying a larger down payment can tip the decision in your favor and also lower your interest rate.

Down payment assistance programs and where to find them

Nonprofits, employers, and some state and local governments offer down payment help. The most common sources are community development organizations (often found through your city or county housing authority), employer programs (especially for teachers, healthcare workers, and government employees), and state-run initiatives. Some programs give grants (money you do not repay), while others offer forgivable loans (you repay only if you sell the house within a certain time frame).

To find programs in your area, start with your city or county housing authority website or call 211 (a free referral line). Search "[your state] down payment assistance" to find state programs. If you work for a large employer, check your HR or benefits website—many corporations offer $5,000 to $25,000 in down payment help. Nonprofits like NeighborWorks and local community land trusts also run programs, though may be able to access and award amounts vary widely by location.

Most programs require you to complete a homebuyer education course (usually online, 4 to 8 hours) and meet income limits tied to your area's median income. Some programs are only for first-time buyers; others are open to anyone. Availability changes month to month as funds run out and reopen, so call before you assume a program is closed.

Comparing the cost of different down payment scenarios

The clearest way to decide is to run the numbers for your situation. Use an online mortgage calculator to compare three scenarios: 3 percent down, 10 percent down, and 20 percent down. Enter the home price, your interest rate (ask a lender what rate you would may have access to for), and the loan term (usually 30 years). The calculator will show your base monthly payment, PMI cost, and total monthly payment for each scenario.

Then ask yourself: Can I afford the monthly payment at 3 percent down? Do I have $51,000 saved for a 20 percent down payment, or would saving that much delay buying by years? Is the difference in monthly payment ($300 to $500) worth the wait? There is no universal right answer—it depends on your timeline, your savings rate, and whether you expect your income or housing costs to change soon.

One common mistake is assuming you must save 20 percent before you can buy. If you can afford the monthly payment at 5 percent down and you plan to stay in the house for at least 7 to 10 years, PMI is a reasonable cost for owning sooner. If you are stretched thin financially, waiting to save more down payment is safer.

How to reduce your down payment requirement

If you are close to approval but a lender wants more down, you have several options. First, improve your credit score by paying down existing debt and making all payments on time for three to six months. Even a 20-point increase can lower your interest rate and improve approval odds. Second, reduce your debt-to-income ratio by paying off credit cards or car loans before applying. Third, shop multiple lenders—different banks have different minimum down payment policies, and one may approve you at 3 percent while another requires 5 or 10 percent.

Fourth, consider an FHA loan instead of a conventional loan if your credit is below 680. FHA loans accept lower credit scores and smaller down payments, though they cost more in insurance. Fifth, ask whether a co-signer (a family member with stronger credit or income) can help you may have access to. Sixth, look into down payment assistance programs specific to your state or employer. Seventh, delay your purchase by six months to a year to save more, improve your credit, and reduce debt.

Frequently Asked Questions

Can I buy a house with no money down?

Yes, if you may have access to for a VA loan (military or veteran), a USDA loan (rural property and income limits), or some state-specific first-time buyer programs. Conventional and FHA loans require at least 3 to 3.5 percent down. Even zero-down loans charge fees (VA funding fee, USDA may provide fee) that are typically rolled into the mortgage.

What happens if I put down less than 20 percent?

You pay private mortgage insurance (PMI) on a conventional loan, which adds $100 to $400+ per month to your payment depending on the loan size and your credit score. PMI stays until you reach 20 percent equity in the home. On an FHA loan, mortgage insurance is permanent if you put down less than 10 percent.

How long does it take to build 20 percent equity and remove PMI?

It depends on your down payment, home appreciation, and how fast you pay down the loan. If you put down 5 percent and make regular payments, you might reach 20 percent equity in 8 to 12 years. If the home appreciates 3 percent per year, you could reach it faster. Once you hit 20 percent equity, contact your lender to request PMI removal.

Do I need a co-signer if I put down a small amount?

Not always, but a co-signer with strong credit or income can help you may have access to for a lower down payment or better interest rate. A co-signer is legally responsible for the loan if you stop paying, so lenders take it seriously. Some programs (especially first-time buyer programs) do not allow co-signers.

What is the difference between down payment assistance and a down payment loan?

Down payment assistance is usually a grant (assistance programs) or a forgivable loan (you repay only if you sell within a set time). A down payment loan is a separate loan you must repay regardless, which increases your total debt and may affect your approval. Most programs offer grants or forgivable loans, not repayable loans.