You don't need 20% down to buy a house

The 20% down payment rule is one of the most persistent myths in American home-buying. It isn't a law. It isn't a lender requirement. On a $425,000 home (close to the national median) 20% means $85,000 in cash. Most first-time buyers don't have $85,000 sitting around. Most don't need it. The typical first-time buyer puts down 10%, according to NAR's 2025 Profile of Home Buyers and Sellers. FHA loans accept 3.5% with a 580 credit score. Some conventional loans go as low as 3%. VA and USDA loans: zero down. The 20% figure is real, but what it actually buys you is an escape from mortgage insurance, not the ability to buy a home.

So where did the myth come from? Conventional loans originated in an era when banks held their own mortgages and set their own rules. Twenty percent was the threshold at which lenders felt confident enough in the borrower's equity cushion that they didn't need additional protection. That threshold survived into the modern mortgage-backed securities era as the point at which private mortgage insurance (PMI) is no longer required. But somewhere along the way, the industry shorthand for "PMI cutoff" became widely mistranslated as "the minimum to buy a house." Those are very different things.

Today the government-backed mortgage market has largely redrawn the rules for first-time buyers. FHA, VA, USDA, and Fannie/Freddie affordable programs all exist specifically to lower the entry point. Most buyers who think they need 20% down actually don't, and many are renting years longer than necessary because nobody corrected that assumption.

The actual minimum down payments by loan type

Here's what lenders actually require in 2026, by loan program:

FHA loans (backed by the Federal Housing Administration) require 3.5% down if your credit score is 580 or above. Drop below 580 and the minimum rises to 10%. FHA is the most widely used low-down-payment program for first-time buyers. On a $425,000 purchase, 3.5% is $14,875. That's a manageable savings target, not a decade-long project.

Conventional loans via Fannie Mae's HomeReady or Freddie Mac's Home Possible programs accept as little as 3% down for borrowers who meet income limits (typically at or below 80% of area median income). A standard conventional loan usually requires 5% to 10% for first-time buyers, though requirements vary by lender and credit profile.

VA loans, available to eligible veterans, active-duty service members, and surviving spouses, require zero down payment and no PMI. They consistently offer the lowest total cost of any mortgage program for those who qualify.

USDA loans offer zero down payment for homes in eligible rural and suburban areas. Income limits apply. The property eligibility map is broader than most people expect, plenty of outer-ring suburban zip codes qualify.

What PMI actually costs: and when it's worth it

PMI is the price you pay on a conventional loan for putting down less than 20%. Rates typically run 0.5% to 1.5% of the loan amount per year, depending on your credit score and down payment. On a $410,000 loan (a $425,000 home with 3% down), PMI at 0.8% adds roughly $273 per month to your payment.

That sounds significant. But consider the alternative. Saving from 3% to 20% on a $425,000 home means coming up with an additional $72,250. At a savings rate of $1,000 a month (which assumes significant financial discipline) that takes over six years. During those six years, if the home appreciates at even 3% annually, the same house costs roughly $507,000. You've spent six years saving $72,000 while the price went up $82,000. You're further behind than when you started.

PMI is also temporary. Once you reach 20% equity in a conventional loan, you can request cancellation. The lender is legally required to remove it when you hit 22% equity based on the original purchase price. The cost is real but finite.

FHA mortgage insurance works differently, and less favorably. FHA requires both an upfront MIP (1.75% of the loan amount, added to the loan) and an annual MIP (0.55% to 1.05% per year). Crucially, FHA MIP on loans originated after June 2013 with a down payment below 10% stays for the life of the loan. You can't cancel it by reaching 20% equity, you'd need to refinance into a conventional loan. This is a real cost to factor in when comparing FHA vs. conventional with PMI.

What first-time buyers are actually doing

According to NAR's 2025 Home Buyers and Sellers survey, the median down payment for first-time buyers was 10% of the purchase price. Repeat buyers, who can roll equity from a sold property into the new purchase, put down 23%. The gap is exactly what you'd expect: repeat buyers have a built-in equity advantage.

The same survey found that the first-time buyer share of the market dropped to a historic low of 21%, with the median age of first-time buyers rising to 40. A significant factor cited: saving for a down payment. Many buyers are waiting too long because they're aiming at the wrong number.

Down payment assistance programs: the money most buyers don't claim

Beyond the loan programs themselves, most states and many counties run down payment assistance (DPA) programs, typically grants or low-interest second loans that help cover the upfront costs. The U.S. Department of Housing and Urban Development maintains a directory of programs by state at hud.gov. Many of these programs go substantially underused because buyers don't know they exist.

If you're buying in a specific city or state, it's worth a 20-minute search before assuming you need to come up with the entire down payment yourself.

When 20% down does actually make sense

Putting 20% down isn't wrong, it eliminates PMI, lowers your monthly payment, and can secure a marginally better interest rate. The case for it is strongest when you already have the cash available without straining your emergency fund, you're buying in a flat or falling market where waiting carries little price risk, and you're confident in the long-term ownership timeline. What makes 20% a bad rule is treating it as universal. For most first-time buyers in a market where rents are rising and saving 20% takes the better part of a decade, the arithmetic points the other way.

The question worth asking isn't "do I have 20%?" It's "what does the math actually say for my specific market, timeline, and loan options?" Those are different questions with different answers.