Published , 3 minute read
You don't need 20% down to buy a home. Learn what happens when you put less down, how PMI works, and how to remove it later.
Quick answer: No — 20% down is not required to buy a home. VA and USDA loans allow 0% down, some conventional loans allow 3%, and FHA allows 3.5%. Twenty percent is simply the point where conventional loans no longer require private mortgage insurance (PMI). For many buyers, putting less down and paying PMI for a few years is a reasonable tradeoff for buying sooner and keeping savings intact.
Where the 20% myth comes from
Twenty percent became the "rule" because it's the threshold for avoiding mortgage insurance on a conventional loan. Mortgage insurance protects the lender if a borrower with less equity defaults. It doesn't mean a smaller down payment is irresponsible — it just means there's an added cost.
Many buyers today put down less than 20%, especially first-time buyers.
How PMI works on conventional loans
- What it costs: PMI is priced based on your credit score, down payment, and loan amount. Higher scores and larger down payments mean lower premiums.
- How you pay: Usually as a monthly amount added to your mortgage payment.
- How it ends: Under federal law, you can ask to cancel borrower-paid PMI once your loan balance reaches 80% of the home's original value, if you meet the requirements (such as a good payment history). It ends automatically when your balance is scheduled to reach 78%. Some servicers also allow removal based on a new appraisal if your home has gained value.
FHA mortgage insurance is different
FHA loans have an upfront mortgage insurance premium of 1.75% of the loan amount (usually financed into the loan) plus an annual premium, most commonly 0.55%, paid monthly. If you put down less than 10% on an FHA loan, the annual premium stays for the life of the loan. The usual way to remove it is to refinance into a conventional loan once you have enough equity.
What waiting to save 20% really costs
Saving 20% on a $400,000 Texas home means $80,000, plus closing costs. For many households, that's years of saving. During that time:
- You're paying rent, which builds no equity for you.
- Home prices may rise, which raises the 20% target too.
- Interest rates may go up or down — nobody can predict which.
That doesn't mean you should always buy with the minimum. It means the decision should be based on your actual numbers, not a rule of thumb.
When 20% (or more) makes sense
- You already have the cash and will still have solid reserves after closing.
- You want the lowest possible monthly payment.
- You're buying a second home or investment property, which often requires larger down payments anyway.
- You're using an alternative documentation loan or jumbo loan that requires a larger down payment.
FAQ
How much is PMI per month? It varies widely based on your credit score, loan amount, and down payment. Your loan officer can quote it for your specific situation.
Can I avoid PMI without 20% down? VA loans have no monthly mortgage insurance. Some lenders also offer lender-paid mortgage insurance, which builds the cost into a slightly higher interest rate instead of a monthly premium.
Do I get PMI money back when it's removed? No. PMI isn't refundable; your payment simply drops once it's removed.
Is it smarter to put 20% down or invest the money? It depends on your goals, your risk tolerance, and your full financial picture. That's a great conversation to have with your financial advisor alongside your loan officer.
Curious what your payment looks like with 5%, 10%, or 20% down? Call or text Mike Tanas at 214-604-5245
This article is general education, not financial, tax or legal advice. Guidelines change and vary by lender. Talk with Mike about your own situation.