Should I Put 20% Down?

Ask most people why you're supposed to put 20% down and the answer is some version of "that's just what you do." It isn't a law, and it isn't a lender requirement on most loan types. It's a legacy number from an era when down payment options were narrower, and it stuck around because it's an easy round figure to repeat.

Here's what 20% actually is: the line at which a conventional lender no longer requires private mortgage insurance (PMI) to protect itself against the extra risk of a smaller down payment. Below 20% down, most conventional loans carry PMI. At or above it, they don't. That's the whole mechanism — not a minimum for qualifying, not a signal of financial maturity, just an insurance threshold.

Conventional loans have allowed as little as 3% down for qualified first-time buyers for years under Fannie Mae Selling Guide and Freddie Mac guidelines. FHA loans, insured by HUD, go to 3.5% down with a 580 or higher credit score. VA loans for eligible service members and USDA loans in eligible rural areas can go to 0% down. See FHA vs. conventional for first-time buyers for a full side-by-side.

So the real question isn't "do I need 20%?" It's: does avoiding mortgage insurance save me more than tying up that extra cash costs me? That's a math question with a specific answer for your situation, not a rule of thumb. Run your numbers in the affordability calculator and the mortgage payment calculator before you decide anything.

The rest of this guide walks through both sides of that math.

Putting 20% down isn't nothing — it buys three concrete things, and it's worth being precise about what they are.

1. No private mortgage insurance On a conventional loan, PMI protects the lender, not you, against the risk of a smaller down payment. It typically runs about 0.3%–1.5% of the loan amount per year, split into your monthly payment, depending on your credit score, loan-to-value ratio, and loan term. At 20% down, that cost disappears entirely from day one.

2. A smaller loan amount More cash down means less borrowed, which means less interest paid over the life of the loan and a lower monthly principal-and-interest payment, all else equal. This is real and durable — it's the one benefit that doesn't depend on program details or timing.

3. A stronger offer in competitive markets Sellers and listing agents read a bigger down payment as a lower-risk buyer — more cushion if the appraisal comes in low, less chance financing falls through. In a multiple-offer situation, a larger down payment can be a genuine edge, separate from the mortgage insurance math.

What it does *not* buy - A better interest rate by itself. Rate is driven mainly by credit score, loan type, and loan-to-value tier, not just by crossing the 20% line. - Automatic approval. You still have to meet [debt-to-income](/dti-calculator) and credit requirements regardless of down payment size. - Immunity from market swings. Home values can still fall temporarily even with 20% equity on day one.

The honest accounting: 20% down buys you no PMI, a smaller loan, and a modest negotiating edge. It does not buy you a fundamentally different mortgage or guaranteed better terms across the board.

Private mortgage insurance gets a bad reputation partly because buyers assume it's permanent. It isn't, and federal law says so.

Under the Homeowners Protection Act (HPA), PMI on most conventional loans has two built-in exit points tied to your loan-to-value (LTV) ratio — the percentage of the home's value you still owe:

• Automatic termination at 78% LTV. Your servicer is required to automatically cancel PMI once your balance drops to 78% of the home's original value, based on the original amortization schedule, as long as you're current on payments. You don't have to ask.
• Borrower-requested cancellation at 80% LTV. You can request cancellation in writing once you reach 80% LTV, provided you have a good payment history and meet any lender conditions, such as no second liens on the property.

Both thresholds are measured against the home's original value in most cases, meaning normal principal paydown gets you there — you don't need an appraisal to hit the automatic 78% cutoff. If your home's value has risen significantly, some lenders will let you request cancellation earlier based on a new appraisal, though this isn't guaranteed and usually comes with a fee.

What PMI typically costs. For a conventional loan, annual PMI commonly runs 0.3%–1.5% of the loan amount, depending on your credit score and down payment size — lower scores and smaller down payments push the rate up. On a $320,000 loan, that's roughly $80–$400 a month, though most well-qualified borrowers land in the lower half of that range.

FHA is different — and important to know before you compare. FHA loans carry their own mortgage insurance premium (MIP) rather than PMI, and it does not follow the same cancellation rules. On most FHA loans made with less than 10% down, MIP stays for the life of the loan; the only way to remove it is to refinance into a conventional loan once you have enough equity. That's a meaningful factor in FHA vs. conventional decisions.

The bottom line: on a conventional loan, mortgage insurance is a temporary, shrinking cost with a legal expiration date — not a permanent tax for buying with less than 20% down.

Every dollar you put into a down payment is a dollar that isn't doing anything else — it isn't in your emergency fund, it isn't invested, and it isn't available if something goes wrong six months after closing.

Getting from 5% down to 20% down on a $350,000 home means finding roughly an extra $52,500. For most buyers, that's not pocket change sitting around — it's money that would otherwise take years to save, or that would come out of a 401(k), an emergency fund, or a gift that could have covered closing costs instead.

Questions worth asking before you chase 20%:

• How long would it take to save the difference? If reaching 20% means renting for three more years while rents rise, the rent vs. buy calculator can show whether that trade actually pays off compared to buying sooner at 10% or 15% down.
• What happens to your reserves? Closing with 20% down and zero cash left over is a worse financial position than closing with 10% down and six months of payments in the bank. Lenders and consumer advocates both flag "house poor" outcomes as one of the most common sources of buyer regret.
• What's the money doing now? If that cash is earning meaningful returns elsewhere, or if it's earmarked for something else — a business, a second property, a retirement contribution — moving it all into a down payment has a real cost even if PMI disappears.
• Are you buying a smaller, older, or farther-out house just to hit 20%? Some buyers stretch their timeline or shrink their target home purely to avoid mortgage insurance, then end up with a house that doesn't fit their needs for years. That trade rarely makes sense once you actually run the PMI cost against the wait.

None of this means a bigger down payment is a bad idea — for many buyers it is the right call. It means 20% shouldn't be treated as free just because it avoids a line-item cost. It has its own price, paid in liquidity and time.

Down payment minimums vary by loan program, and the right one for you depends on your credit, your eligibility, and how long you plan to keep the loan.

3% down — conventional Available to qualified first-time buyers (and some repeat buyers with income limits, depending on the program) through Fannie Mae and Freddie Mac. Requires PMI, which cancels under the HPA rules covered above. Generally rewards stronger credit with better pricing on both the rate and the PMI cost, so it can be a strong option for buyers with good-to-excellent credit and limited cash.

3.5% down — FHA Insured by HUD, with more flexible credit requirements — a 580 score qualifies for the 3.5% minimum, and scores as low as 500 may qualify with 10% down. FHA is often more forgiving on debt-to-income ratios and past credit issues. The tradeoff is FHA's mortgage insurance premium (MIP), which on most loans doesn't cancel automatically and typically requires a refinance to remove.

0% down — VA and USDA VA loans, guaranteed by the Department of Veterans Affairs, are available to eligible service members, veterans, and some surviving spouses, with no down payment required and no monthly mortgage insurance (though most borrowers pay a one-time VA funding fee). USDA loans, backed by the U.S. Department of Agriculture, offer 0% down for eligible buyers in eligible rural and some suburban areas, with income limits and a guarantee fee in place of traditional PMI.

How to choose - **Strong credit, tight cash, plan to stay a while:** 3% conventional often wins on total cost once PMI cancels. - **Credit challenges or higher debt-to-income:** FHA's flexibility can outweigh its stickier mortgage insurance. - **Eligible for VA or USDA:** These usually beat both, since eliminating the down payment barrier without the ongoing cost of PMI is hard to match — check eligibility before assuming you don't qualify.

Run your own numbers with the affordability calculator and see the full breakdown in FHA vs. conventional for first-time buyers.

Standard monthly PMI isn't the only way mortgage insurance can be structured, and knowing the alternatives can change how you think about your down payment.

Lender-paid mortgage insurance (LPMI) Instead of you paying a monthly PMI premium, the lender covers the insurance cost and builds it into a slightly higher interest rate on the whole loan. There's no separate PMI line item on your payment, which can help with debt-to-income qualifying since it's baked into the rate rather than itemized. The tradeoff: unlike standard PMI, LPMI doesn't go away when you hit 78%–80% LTV — because it's part of your rate, removing it means refinancing.

Single-premium (upfront) mortgage insurance Some lenders offer the option to pay the entire mortgage insurance premium as a one-time cost at closing instead of monthly. This can lower your monthly payment meaningfully and may be worth it if you have the cash but not quite enough for 20%, or if a relative is contributing a gift toward closing costs. It's a bet that you'll keep the loan long enough to make the upfront cost worthwhile — running before a couple of years generally doesn't pay off.

Split-premium mortgage insurance A hybrid: part of the premium is paid upfront, part continues monthly, resulting in a lower ongoing PMI cost than the standard structure. This can be a middle ground for buyers who have some extra cash at closing but not a large reserve.

Piggyback (80-10-10) loans A structure where you put 10% down, take a first mortgage for 80% of the price, and a second mortgage (often a home equity loan or line) for the remaining 10%. Because the first mortgage sits at 80% LTV, it avoids PMI entirely. The second loan usually carries a higher rate, so this only makes sense when the combined cost beats standard PMI — worth comparing carefully with a loan officer rather than assuming it's automatically cheaper.

Each of these shifts *when* and *how* you pay for reduced-down-payment risk, rather than eliminating the tradeoff. The right structure depends on how long you'll keep the loan, how much cash you have on hand, and whether you expect to refinance.

None of this is an argument against 20% down — it's an argument against treating it as mandatory. There are situations where it's clearly the smart move:

• You already have the cash without touching your emergency fund or retirement savings. If 20% is sitting there and pulling it doesn't create a liquidity problem, avoiding PMI is close to free money.
• You're buying in a market where jumbo loan limits make PMI unavailable or expensive. Some jumbo programs require larger down payments regardless, or price mortgage insurance less favorably than conforming loans.
• You plan to keep the loan a long time. The longer you hold the mortgage, the more total PMI you'd otherwise pay, which tips the math further toward a bigger down payment.
• You want the lowest possible monthly payment and the cash isn't needed elsewhere. If there's no competing use for the money and no timeline pressure to buy sooner, 20% down produces the smallest ongoing housing cost.
• You're trying to win a competitive offer situation where a larger down payment signals lower risk to a seller comparing multiple bids.

What 20% down should never be is a barrier that delays a ready buyer by years, drains a safety net, or forces a compromise on the type of home that actually fits your life. If you're unsure where you land, the Readiness Score walks through your full file — credit, debt, cash, and stability — and shows what your options look like at several down payment levels, not just the round number everyone assumes is required.