A down payment is the upfront cash you pay toward a home purchase — the portion of the purchase price you’re paying out of pocket rather than financing through a mortgage. The down payment amount affects your loan terms, monthly payment, and whether you’ll owe PMI.
The 20% myth
You’ve probably heard you need 20% down to buy a home. That’s not true. The 20% figure comes from the threshold at which you avoid paying Private Mortgage Insurance (PMI) — not a requirement to qualify for a mortgage. Many loan programs allow 3%–5% down, and some allow 0% for qualifying buyers.
Common down payment options
Conventional loans: as low as 3% down for first-time buyers. FHA loans: 3.5% down (or 10% with credit scores below 580). VA loans: 0% down for veterans and active military. USDA loans: 0% down for qualifying rural properties. Each program has different qualification requirements and trade-offs.
The trade-off: smaller down payment vs larger
A smaller down payment means less cash upfront but higher monthly payments, a larger loan, and PMI if under 20%. A larger down payment means more cash upfront, lower monthly payments, no PMI, and better loan terms. Neither is universally right — it depends on your financial situation and goals.
What is PMI?
Private Mortgage Insurance protects the lender (not you) if you default. It’s required on conventional loans with less than 20% down. PMI typically costs 0.5%–1.5% of your loan amount annually — on a $300,000 loan, that’s $1,500–$4,500/year. It can be removed once you reach 20% equity.
Down payment assistance programs
Many states and local governments offer down payment assistance programs — grants or forgivable loans that help buyers cover the upfront costs. First-time buyers especially should research what’s available in their state before assuming they need to save the full amount themselves.