The 20% down payment is one of the most repeated — and most misunderstood — numbers in home buying. You don't legally need 20% to buy a home, but the figure matters because it's the threshold where private mortgage insurance disappears. This guide explains what down payment you actually need, what PMI costs, and how to decide between putting down more or less.

Where the 20% number comes from

On a conventional loan, if your down payment is below 20% of the purchase price, lenders require private mortgage insurance (PMI). PMI protects the lender — not you — against the higher risk of a low-equity loan. Once you reach 20% equity, PMI can typically be removed, and lenders are generally required to cancel it automatically once your balance reaches 78% of the original value.

So 20% isn't a legal minimum to buy — it's the point at which an extra monthly cost switches off.

How little can you put down?

  • Conventional loans: as little as 3% down for many buyers, with PMI.
  • FHA loans: as little as 3.5% down with a qualifying credit score, with their own mortgage insurance (MIP).
  • VA and USDA loans: 0% down for eligible borrowers (veterans/service members, and certain rural buyers), with different fee structures.

The trade-off is always the same: a smaller down payment means a larger loan, a higher monthly payment, and usually mortgage insurance until you build equity.

What PMI actually costs

PMI typically runs a fraction of a percent to about 1% or more of the loan amount per year, depending on your down payment size and credit score, and it's usually split into monthly payments. On a $300,000 loan, even 0.5% is $1,500 a year — about $125 a month — added on top of your principal, interest, taxes, and insurance. It's not permanent, but it's real money while it lasts.

Bigger down payment vs. smaller: how to decide

A larger down payment lowers your loan, cuts your monthly payment, can eliminate PMI, and sometimes earns a slightly better rate. But it also ties up cash you might need for closing costs, moving, emergencies, or home repairs. Consider these questions:

  • Will putting down more leave you with an emergency fund? Being "house poor" with no cash cushion is risky. Keep several months of expenses in reserve.
  • How long will you stay? If you'll move in a few years, the equity gains from a big down payment matter less.
  • How much does PMI actually cost you? Sometimes accepting PMI for a couple of years — then cancelling it at 20% equity — beats draining your savings up front.
  • What else could the money do? Paying off high-interest debt or funding retirement may outperform the guaranteed savings of a bigger down payment.

Don't forget closing costs

Your down payment isn't the only cash you need at closing. Closing costs — lender fees, title insurance, appraisal, prepaid taxes and insurance — commonly run 2% to 5% of the purchase price. Budget for these separately so a 10% down payment doesn't accidentally become your entire available cash.

The bottom line

You can buy with far less than 20% down, but below that threshold you'll pay mortgage insurance until you build enough equity. The right down payment balances a lower payment against keeping enough cash for closing costs and emergencies. Run both scenarios in a calculator — 10% down vs. 20% down — and compare the monthly payment and total cost before deciding.