How much down payment do you actually need?

Twenty percent down is not a rule, a requirement, or even the most common down payment among recent buyers. It is the threshold above which a lender stops requiring mortgage insurance, and that is a genuinely useful number to know — but treating it as a prerequisite to buying at all leads people to save for years past the point where buying made sense, or to assume they are locked out of homeownership when they are not.

The real decision is not "do I have 20%." It is a comparison: what does a smaller down payment cost you, in a higher payment and a mortgage insurance premium, against what waiting costs you, in rent paid and a purchase price that may not stand still. Both sides of that comparison are calculable. This guide walks through the actual minimums by loan type, how mortgage insurance works and when it ends, and a worked example that puts a dollar figure on buying sooner versus saving longer.

What the minimum actually is, by loan type

The 3-5% range, not 20%, is what most buyers who finance actually put down. Every loan program sets its own floor, and the floor is lower than most people assume:

Every one of these except VA and USDA still charges something for insuring the lender against default on a low down payment, whether that shows up as a monthly premium or a one-time fee. The trade a low-down-payment buyer is actually making is not "can I buy" — it is "how much am I willing to pay, in mortgage insurance and often in rate, to buy sooner with less cash." That is a real trade, and for many buyers it is still the right one. It just deserves to be made deliberately rather than skipped past because 20% felt out of reach.

How PMI works, and the two numbers that matter

Private mortgage insurance on a conventional loan is not permanent, and it is not optional once you are below 20% down — but the way it ends is more mechanical than most explanations make it sound, and it comes down to two loan-to-value thresholds.

At 78% loan-to-value, measured against the home's original purchase price and following the original amortization schedule, federal law requires your lender to cancel PMI automatically. You do not have to ask. At 80% loan-to-value, you can request cancellation yourself, provided your payment history is current — the gap between 80% and 78% exists because the automatic cancellation is scheduled and conservative, while a borrower-requested cancellation at 80% can happen the moment your balance crosses it.

There is a third path that most explanations skip: if your home has appreciated, its current value can put you at 80% loan-to-value years before the original amortization schedule would. Request a new appraisal, and if it confirms the lower ratio, most lenders will cancel PMI on the spot rather than waiting out the original schedule — this is often the fastest way to shed the premium, and it costs only the appraisal fee to find out. Track where your own balance sits against your home's estimated current value with the loan-to-value calculator, and model the full payment either way with the mortgage calculator.

FHA's mortgage insurance is a different, stickier animal

FHA loans trade a lower down payment and looser credit requirements for mortgage insurance that behaves nothing like conventional PMI. There is an upfront premium due at closing, financed into the loan, and an annual premium folded into the monthly payment — and unlike PMI, it does not simply cancel once your balance crosses a loan-to-value threshold.

The rule is about your down payment at closing, not your balance later: put down at least 10%, and the annual premium cancels automatically after 11 years. Put down less than 10% — which describes most FHA borrowers, since the minimum is 3.5% — and the premium runs for the life of the loan, full stop, regardless of how much equity you build. This is the single biggest reason FHA borrowers refinance into a conventional loan as soon as they qualify: it is often the only way to stop paying for mortgage insurance on a loan that would have shed PMI years earlier under conventional rules. If refinancing is on your horizon once you have enough equity, when it actually pays to refinance covers the math of that decision, including the closing costs that eat into the savings.

A smaller down payment usually costs you twice

Mortgage insurance is the visible cost of a small down payment. The less visible one is the rate itself. Loans above 80% loan-to-value are priced as a higher default risk under the pricing grids investors and lenders use, so the interest rate on a 5%-down loan often runs a fraction of a point above the rate on the identical loan at 20% down — before any mortgage insurance premium is even added to the payment. Neither cost is disqualifying on its own. Together, they are why the gap between a 10%-down payment and a 20%-down payment on the same house is bigger than the extra 10% of principal alone would suggest.

Worked example: 10% down versus 20% down on the same house

Take a $400,000 home financed with a 30-year fixed loan at 6.5%. One buyer puts down 10%, the other 20%:

The 10%-down buyer pays $433 more per month than the loan-size difference alone would explain, because $180 of it is PMI. Assuming no extra principal payments and no early appraisal-based cancellation, amortizing from 90% down to the 78% automatic-cancellation threshold on this loan takes roughly nine years — meaning the 10%-down buyer pays something in the neighborhood of $19,500 in PMI premiums before it drops off on its own, on top of the higher payment throughout. That is the real price of the smaller down payment, stated in dollars rather than a rule of thumb.

Monthly payment: 10% down vs 20% down on a $400,000 home

	Monthly payment: 10% down vs 20% down on a $400,000 home
10% down ($40,000)	$2,455/mo
20% down ($80,000)	$2,023/mo

30-year fixed at 6.5% on both loans; PMI estimated at 0.6% of the original loan balance per year on the 10%-down loan, held flat until cancellation.

Bigger down payment, or buy sooner? A worked comparison

The numbers above make 20% down look strictly better, and on a fixed purchase price it is. But a purchase price rarely stays fixed while you save, and the real decision usually looks like this: buy now with 10% down, or spend a few years saving the rest of a 20% down payment while renting and watching the target price move.

Take the same $400,000 home, and assume prices in the area rise 3% a year — a modest, deliberately unremarkable assumption:

The buyer who waited ends up with a genuinely lower payment and no mortgage insurance — that part of the 20% case holds up. But getting there cost $126,600 in rent and additional savings, spread over three years with nothing to show for it in home equity, while chasing a purchase price that rose $37,000 in the meantime. The buyer who bought at 10% down is, by the same point, sitting on roughly $89,900 in equity from a mix of appreciation and paying down principal — more than double the original down payment — even after three years of PMI premiums.

There is one more detail worth noticing in that table: by year three, the buy-now buyer's loan balance sits at about 79% of the home's current appraised value, even though the original amortization schedule would not cross 78% of the original value for years yet. That is the appreciation-based cancellation path from earlier in this guide showing up in practice — a quick call to the lender and a new appraisal could end the PMI premium well ahead of schedule, on top of the equity advantage already shown. Run your own price, rate, and down payment through the down payment calculator to see where your market's numbers land, and check what the resulting payment does to your overall budget with how much house you can actually afford.

Where to keep the money while you save

However you land on the bigger-versus-sooner question, the money earmarked for a down payment has a short time horizon by definition — a few months to a few years — and that horizon should decide where it sits, separate from how you invest for retirement. A high-yield savings account or a short-term CD is the standard answer: it gives up the higher expected return of the stock market in exchange for the one thing that actually matters here, which is that the balance is not down 15% the month you are supposed to close. A down payment fund is not the place to reach for yield; a market drop with no time to recover before closing is a cost with no offsetting upside, and it lands at the single worst possible moment.

If you are still weighing whether buying beats renting at all before you get to how much to put down, renting versus buying, honestly works through that earlier question — the down payment size matters most once the decision to buy is already made.