Do You Really Need to Put 20% Down on a House? Here's What Experts Say

Key Summary

• Contrary to popular belief, a 20% down payment is not a mandatory requirement for purchasing a home, as numerous loan programs, including FHA, VA, and USDA options, allow for significantly lower or even 0% down payments for qualified individuals.
• While a larger down payment, like 20%, offers advantages such as avoiding Private Mortgage Insurance (PMI) and reducing overall interest paid, it can also deplete essential cash reserves needed for immediate home expenses or emergencies.
• Ultimately, the decision on how much to put down should be personalized, considering individual financial circumstances, and buyers are encouraged to research available down payment assistance programs and consult with real estate and lending professionals to navigate their options effectively.

If you’ve never purchased a home, chances are you’ve heard a lot of information that may not be accurate. The idea that you need to make a certain amount of money to qualify, the idea that you can’t afford a home with high interest rates, or the idea that only cash offers are competitive. But what about a 20% down payment?

“A common misconception is that a 20% down payment is always required to buy a home. That's simply not true,” says Nectar CEO and cofounder Derrick Barker. 

Here, experts weigh how a 20% down payment factors into home buying and what you can do about it.

Do You Need to Put 20% Down on a Home? 

In a word, no. Putting 20% cash down on a home isn’t a requirement for home buying, though it does have its advantages. 

“Many people believe that a 20% down payment is a mandatory requirement when purchasing a home,” says Cindy Raney, founder of Connecticut-based boutique real estate firm Cindy Raney & Team. "This perception often stems from traditional lending practices where putting down 20% allows borrowers to avoid private mortgage insurance (PMI), which protects lenders in case of default.”

Barker points out that while 20% is often required for conventional loans, “many loan programs allow for lower down payments, sometimes as low as 3% or even 0% for qualified buyers,” he explains. 

“Another misconception is that putting less than 20% down automatically means a higher interest rate. While it can sometimes be a factor, it's not the only one,” Barker says. “Lenders look at your overall financial picture, including your credit score, debt-to-income ratio, and employment history.”

Putting more money down isn’t just a random benchmark for buyers. It also benefits them. “The more equity one holds, the better, as they assume less risk,” says agent Jeremy Kamm of Coldwell Banker Warburg.

Still, there are good reasons not to put that amount down. “Buyers who stretch as far as they can to purchase the best their money can buy without financially compromising themselves should consider all the factors involved in taking out a mortgage with less than a 20% down payment,” Kamm adds. 

Home Loan Options

If you’ve been pre-approved for a home loan, you’ve likely learned a bit about the types available, from traditional home loans to Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and Department of Veteran Affairs (VA) loans. 

“FHA loans require as low as 3.5% down, while VA and USDA loans can be obtained with 0% down for qualified borrowers,” says Barker. “The pros are lower down payment requirements, and the cons can include stricter eligibility criteria, higher interest rates, and additional fees.”

There are also programs that can help, including down payment assistance programs. 

“State and local governments often have first-time homebuyer programs, and some employers even offer assistance,” Barker adds. “Do your research and see what's available in your area.”

Raney says these loans have much lower down payment requirements, making it easier for a wider group of homebuyers to enter the market. FHA loans require as little as 3.5% down while she says some conventional loans start as low as 5%. 

“Buyers with strong credit may find that their interest rates remain competitive, even with a smaller down payment,” she adds.

These smaller down payment requirements aren’t just great for those who can’t afford a 20% down payment, but they’re also a good option for those who would like to hold onto their cash savings. 

“A smaller down payment could allow buyers to retain more cash for other needs, such as home improvements, moving expenses, or emergency savings,” Raney adds. “For instance, a 5% down payment on that same $100,000 home would require just $5,000, freeing up $15,000 that could be invested or used to cover unforeseen costs.”

Pros and Cons of a 20% Down Payment

There are definite bonuses and drawbacks to putting 20% down on your home purchase, even if it isn’t required. 

Advantages

“Putting 20% down has some definite advantages,” Barker says. “First, you'll avoid Private Mortgage Insurance (PMI), which is an added cost that protects the lender if you default on your loan.” PMI, like other types of home insurance and interest rates can significantly impact your buying power. 

“Second, a larger down payment means a smaller loan amount, which translates to lower monthly payments and less interest paid over the life of the loan,” Barker adds. “Finally, starting with more equity in your home can give you a stronger financial footing.”

As an example, Barker suggests looking at a $300,000 home purchase with a 20% down payment of $60,000. A loan for that home would amount to $240,000, and with a 6% interest rate over 30 years, you’d pay about $1,440 a month in principal and interest payments. 

“With 10% down ($30,000), your loan is $270,000, and the same terms result in a monthly payment of around $1,620,” he adds. “Over 30 years, you'll pay significantly more in interest with the smaller down payment.”

Another bonus: sellers might prefer that buyers put more down. “In many instances, sellers feel that someone who is able to make at least a 20% down payment represents a better offer—whether or not this is true is up for debate but definitely worth keeping in mind, especially in a competitive market,” says Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. 

Disadvantages

Of course, a downside to putting 20% down is that you’ll have less cash to address other problems with your home once you move in. If putting 20% down on a home means exhausting all of your cash savings, you might want to split the difference to ensure you have cash on hand for emergencies and new home necessities.

Deciding how much to put down will come down to your own personal budget. It's important to consider your savings, income, expenses, and other financial goals. And don't forget to factor in closing costs, which can be significant.

Experts agree it’s best to consult with your agent and lender to explore your options. 

“Ultimately, with the right guidance, buyers can navigate these financing options effectively,” says Rodrick McIntosh, broker and CEO with Better Homes and Gardens Real Estate Rhodes Realty. 

Looking to buy your first home? Check out our down payment assistance options.

This article was written by Kristine Gill from Better Homes and Gardens and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.