Myth vs. Fact: Do You Need 20% Down?

A common misconception in homebuying is that a 20% down payment is mandatory. While putting down 20% can help avoid private mortgage insurance (PMI) and reduce monthly payments, it is not a requirement for purchasing a home. In fact, many loan programs allow for significantly lower down payments, making homeownership more accessible to a broader range of buyers.

Several mortgage programs are specifically designed for buyers who cannot or prefer not to put down 20%. FHA loans, backed by the Federal Housing Administration, require as little as 3.5% down and are popular among first-time buyers and those with less-than-perfect credit. Some conventional loans, such as Fannie Mae's HomeReady and Freddie Mac's Home Possible, allow down payments as low as 3% when certain income and credit criteria are met. VA loans, available to eligible veterans and active-duty service members, often require no down payment and do not include PMI. USDA loans, aimed at rural and suburban buyers who meet income requirements, also offer zero down payment options.

Choosing a lower down payment can help buyers get into homes sooner, but it comes with trade-offs. Private mortgage insurance is usually required for conventional loans with less than 20% down, which increases monthly costs. However, PMI can typically be removed once enough equity has built up in the home. Some lower down payment loans may also carry higher interest rates or additional fees, so it’s important to compare loan terms and understand the long-term costs. With less equity upfront, buyers should be prepared with extra savings to cover closing costs, home maintenance, and emergencies.

While a 20% down payment has advantages, it’s not essential for purchasing a home. Many people are surprised to learn that homeownership is within reach sooner than they expected. Exploring the right loan options and working with an experienced mortgage professional can help buyers find the best fit for their financial situation and long-term goals.