The Down Payment Myth

Myth: You need 20% down to buy a house.

Reality: The average first-time buyer puts down just 6-7%. Many programs allow 3% or even 0% down.

However, putting down less than 20% comes with trade-offs you need to understand.

Down Payment Options Compared

3-5% Down

Minimum for most conventional loans

✓ Can buy sooner
✗ Requires PMI ($100-300/month)
✗ Higher monthly payment
✗ Harder to qualify

Good for: Entry-level buyers who can't save more

10% Down

Compromise option

✓ Lower PMI costs
✓ Better rates than 3%
✗ Still requires PMI
✗ Takes longer to save

Good for: Buyers with some savings

20% Down ⭐

The "sweet spot"

✓ No PMI required
✓ Best interest rates
✓ Lower monthly payment
✓ More equity from day 1

Good for: Buyers who can wait to save more

25%+ Down

Maximum savings

✓ Lowest rates possible
✓ Lowest monthly payment
✗ Ties up a lot of cash
✗ Opportunity cost (investments)

Good for: High-net-worth buyers

How Much Down Payment Do YOU Need?

On a $300K House:

3% down: $9,000
5% down: $15,000
10% down: $30,000
20% down: $60,000

On a $500K House:

3% down: $15,000
5% down: $25,000
10% down: $50,000
20% down: $100,000

The True Cost of PMI

Private Mortgage Insurance (PMI) is required when you put down less than 20%. Here's what it costs:

$300K loan, 5% down: ~$150-200/month in PMI
$500K loan, 5% down: ~$250-350/month in PMI

Over 10 years, that's $18K-42K down the drain.

💡 Good News: You Can Cancel PMI

Once you reach 20% equity (through payments + appreciation), you can request PMI removal. Typically takes 5-7 years with a 5% down payment.

Special Down Payment Programs

Government-Backed Loans

FHA Loans: 3.5% down, easier credit requirements
VA Loans: 0% down for veterans
USDA Loans: 0% down for rural areas

First-Time Buyer Programs

State housing agencies: Down payment assistance grants ($3K-15K)
Employer programs: Some companies offer down payment help
IRA withdrawal: Can withdraw $10K from IRA penalty-free for first home

Strategies to Save for Down Payment Faster

Short-Term (1-2 years)

Automate savings: Set up automatic transfer of 20% of income
Cut major expenses: Downsize apartment, sell car, pause subscriptions
Side hustle: Freelance, Uber, sell stuff—every $100/week = $5,200/year
Tax refund: Adjust W-4 to get less refund, more monthly cash

Medium-Term (2-5 years)

High-yield savings: Earn 4-5% on down payment fund
Invest conservatively: 60/40 stocks/bonds for 5+ year timeline
Ask family: Parents or relatives might gift or loan down payment
Increase income: Promotion, job switch, develop new skills

⚠️ Don't Do This

❌ Drain your emergency fund completely
❌ Take out a personal loan for down payment (lenders will catch this)
❌ Use retirement funds (except $10K IRA withdrawal for first home)
❌ Invest down payment money in stocks if buying within 2 years

Should You Wait to Save 20%?

Wait to save 20% if:

✓ You can save it within 2-3 years
✓ Home prices are stable or declining
✓ Rent is cheap relative to buying
✓ You want the lowest possible payment

Don't wait, buy with less if:

✓ Home prices are rising 5%+ per year (waiting costs more)
✓ Rent is expensive (buying builds equity instead)
✓ You found the perfect home and can afford PMI
✓ Interest rates are rising (lock in lower rate now)

Real Example: 5% vs 20% Down

$400K home purchase:

Option A: 5% Down ($20K)

Loan amount: $380K
Monthly payment: $2,850 (including PMI)
Can buy TODAY

Option B: Wait 3 years to save 20% ($80K)

Loan amount: $320K
Monthly payment: $2,300 (no PMI)
BUT: If prices rise 4%/year, that $400K home costs $450K in 3 years
New 20% down needed: $90K

The math: In rising markets, buying sooner with less down often wins.

Down Payment Guide