The idea that you need 20 percent down to buy a home is one of the most persistent myths in homebuying. It keeps a lot of people on the sidelines longer than they need to be. The reality is that most loan programs require far less, and some require nothing down at all.
That does not mean down payment size is a decision to gloss over. How much you put down affects your monthly payment, whether you pay mortgage insurance, and how much equity you start with from day one. Here is what you actually need to know before you decide.
There Is No Single Answer
The minimum down payment depends entirely on the loan type you qualify for. Some programs are built specifically for buyers who do not have a large sum saved up. Others reward buyers who can bring more to the table with better rates and no mortgage insurance.
Here is a breakdown by loan type:
- VA loans: No down payment required for eligible veterans, active-duty service members, and some surviving spouses
- USDA loans: No down payment required for eligible borrowers in qualifying rural and suburban areas
- FHA loans: As little as 3.5 percent down with a credit score of 580 or higher
- Conventional loans: As little as 3 percent down for qualified buyers, though 20 percent eliminates mortgage insurance entirely
What Happens When You Put Down Less Than 20 Percent
Putting down less than 20 percent on a conventional loan means you will pay Private Mortgage Insurance, or PMI, until you reach that equity threshold. PMI is not forever, but it does add to your monthly payment in the meantime.
FHA loans work similarly with a Mortgage Insurance Premium, or MIP, but with one important difference. Depending on your down payment amount, MIP can last for the life of the loan rather than dropping off once you hit 20 percent equity. That is worth factoring into your long-term cost comparison.
VA and USDA loans have no monthly mortgage insurance at all, which is a significant advantage even without a down payment. VA loans do have a funding fee that applies in most cases, though exemptions exist for certain borrowers.
More Down Is Not Always Better
It seems like putting more down is always the smart move, and in some situations it is. A larger down payment means a smaller loan balance, lower monthly payments, and less interest paid over time.
But there are situations where putting every dollar you have into a down payment can leave you stretched thin. Buying a home comes with closing costs, moving expenses, and the inevitable first-year surprises that come with any property. Going into homeownership with little to no cash reserve can create real stress if something unexpected comes up.
A good rule of thumb is to think about the down payment and the cash reserve as separate goals. You want enough down to get into a loan that makes sense for your budget, and enough left over to handle what comes next.
How Down Payment Affects Your Monthly Payment
The relationship between down payment and monthly payment is straightforward. The more you put down, the less you borrow, and the lower your monthly principal and interest payment. But the difference is not always as dramatic as people expect.
On a $250,000 home for example, the difference in monthly payment between putting 5 percent down and 10 percent down is meaningful but not enormous. Where the real savings show up over time is in total interest paid and how quickly you can eliminate mortgage insurance. An AGCU loan officer can model different down payment scenarios for your specific purchase price so you can see exactly how the numbers play out.
Down Payment Assistance Programs
If saving for a down payment is the main thing standing between you and homeownership, it is worth asking about down payment assistance programs. Many state and local programs offer grants or low-interest secondary loans to help eligible buyers cover the upfront costs of buying a home. Requirements vary by program and location, so talking to a loan officer who knows the local landscape is the best place to start.
A Quick Side by Side
| Loan Type | Minimum Down Payment | Mortgage Insurance |
| VA | 0% | None |
| USDA | 0% | No monthly MI, guarantee fee applies |
| FHA | 3.5% | Required, may last life of loan |
| Conventional | 3% | Required under 20%, can be canceled |
| Jumbo Conventional | Typically 10 to 20% | Varies by lender |
Frequently Asked Questions
Does a bigger down payment get me a better interest rate?
Generally yes, though the impact varies by loan type. On conventional loans, a larger down payment combined with a strong credit score can qualify you for a better rate. On government-backed loans like VA and USDA the rate benefit is less directly tied to down payment size.
Can I use gift money for a down payment?
Yes, in most cases. Most loan programs allow gift funds from family members for all or part of the down payment. There are documentation requirements involved, so let your loan officer know early in the process if you plan to use gifted funds.
What is the difference between a down payment and closing costs?
A down payment is the portion of the purchase price you pay upfront. Closing costs are the fees associated with processing and finalizing the loan, typically ranging from 2 to 5 percent of the loan amount. Both are due at closing, so it is important to budget for both when you are planning your purchase.
See What You Actually Need to Get Started
Your down payment requirement depends on the loan you qualify for, your credit profile, and your goals. Our AGCU mortgage team can walk you through your options and help you figure out exactly what you need to get into a home.
- Start your pre-approval at agcuhomeloans.org
- Call Member Care at 866-508-AGCU, Monday through Friday, 7:30 a.m. to 5:00 p.m. CT
- Start a Video Banking call
- Email us at info@agcu.org