Down Payment Guide: How Much You Need, PMI Rules & First-Time Buyer Strategies
The size of your down payment affects your monthly payment, PMI requirements, mortgage rate, and long-term wealth. Learn exactly what's required by loan type and how to decide whether putting more down makes financial sense.
Minimum Down Payment by Loan Type
The minimum down payment you need depends entirely on the loan program, your credit score, and the property type. Understanding each program's rules prevents the common mistake of assuming 20% is the only path to homeownership. Conventional loans backed by Fannie Mae and Freddie Mac allow as little as 3% down for first-time buyers (97% LTV programs
PMI: What It Costs and When It Ends
Private Mortgage Insurance (PMI) protects the lender — not you — if you default on the loan. It's required on conventional loans when your down payment is less than 20% (LTV above 80%). Understanding how PMI is priced, how much it costs, and precisely when it ends is critical to evaluating your down payment decision. PMI rates range from approximat
3%, 10%, and 20% Down: True Cost Comparison
The down payment decision isn't just about minimizing upfront cash — it affects your monthly payment, total interest, PMI costs, and the opportunity cost of the capital deployed. Let's compare three scenarios on a $350,000 home at 7% APR on a 30-year conventional loan. Scenario A — 3% down ($10,500): Loan: $339,500 Monthly P&I: $2,261 PMI (~0.85%):
The Investment Opportunity Cost Argument
The traditional advice to put 20% down deserves scrutiny in an era where index fund returns have historically averaged 9%–10% annually. If you have $70,000 available, is it better to use it as a down payment or invest it while taking a smaller down payment with PMI? The honest answer: it depends on the spread between your mortgage rate and your exp
Frequently Asked Questions
Do you need 20% down to buy a house?
No — 20% down is not required. Conventional loans allow as little as 3% down, FHA loans require 3.5% (with 580+ credit), and VA and USDA loans offer 0% down options. The 20% threshold eliminates the need for PMI and slightly improves rates, but millions of homeowners successfully
How much should I put down on a house?
A commonly recommended approach: maintain a full emergency fund (3–6 months of expenses), then put down enough to keep your debt-to-income ratio calculator ratio and monthly payment manageable. For most first-time buyers, 10%–20% balances PMI costs, monthly payment affordability,
What is the minimum down payment for a conventional loan?
The minimum down payment for a conventional loan is 3% for first-time buyers using Fannie Mae HomeReady or Freddie Mac Home Possible programs, and 5% for standard conventional loans. A 620+ credit score is required; higher scores qualify for better rate pricing. PMI is required u
When does PMI go away on a conventional loan?
PMI automatically terminates when your loan balance reaches 78% of the original purchase price, as required by the Homeowners Protection Act. You can request cancellation at 80% LTV with a written request and no recent delinquencies. Lenders may require an appraisal. Making extra
Can I use gift money for a down payment?
Yes — gift funds from relatives are acceptable for down payments on most loan types, including conventional, FHA, and VA loans. The donor must provide a signed gift letter specifying the amount, source of funds, the recipient, and that no repayment is expected. The lender will tr
Is it better to put more money down or keep cash to invest?
The decision depends on the spread between your mortgage rate and expected investment returns. At mortgage rates above 7%, paying down the loan (avoiding interest) competes favorably with market returns for risk-adjusted comparison. At lower rates (3%–5%), the historical premium