The 20% down payment became gospel decades ago — when 20% avoided private mortgage insurance. Today, with median home prices around $400,000, that's $80,000 in cash. Most first-time buyers don't have that, and waiting to save it can mean missing years of appreciation and below-market rents.
Minimum Down Payments by Loan Type
- •Conventional loan: 3–5% minimum (PMI required below 20%)
- •FHA loan: 3.5% minimum (580+ credit score); 10% with 500–579 credit
- •VA loan: 0% down for eligible veterans and active-duty military
- •USDA loan: 0% down in eligible rural/suburban areas
- •Jumbo loans: typically 10–20% minimum
The PMI Math
PMI (private mortgage insurance) typically costs 0.5–1.5% of your loan amount annually, paid monthly. On a $320,000 loan (80% of $400,000 home with 20% down), that's $133–$400/month. PMI cancels automatically once you reach 80% LTV, or you can request removal at 78% LTV.
If you put 10% down instead of 20% on a $400,000 home, you're borrowing an extra $40,000. At 7% over 30 years, that's an extra $266/month in principal and interest, plus roughly $200/month in PMI. But you kept $40,000 in cash, which could be invested or kept as reserves.
The Opportunity Cost Calculation
The real question is: what would you do with the extra cash if you didn't put 20% down? If it sits earning 0.5% in a savings account, putting it in the house is better. If it would go into a broadly diversified index fund earning 7–10% annually, the calculus shifts. The higher your expected investment return, the less attractive a large down payment becomes.
First-time buyers in many states qualify for down payment assistance programs (DAPs) that provide grants or forgivable loans. Check your state housing finance agency — some programs offer 3–5% of the purchase price as free money.
The "right" down payment isn't the maximum you can afford — it's the amount that balances your monthly payment comfort, PMI cost, cash reserves (keep at least 3–6 months of expenses after closing), and opportunity cost. For most first-time buyers, 5–10% is the optimal range, not 20%.