If you are preparing to buy a home, you may have heard that you need a 20% down payment. While putting 20% down can offer advantages, it is not a universal mortgage requirement. Depending on the loan program and your qualifications, you may be able to purchase a home with significantly less upfront.
Why Do Some Homebuyers Put 20% Down?
A larger down payment reduces the amount you need to borrow, which generally results in a lower principal and interest payment than financing the same home with a smaller down payment and otherwise identical loan terms.
On many conventional mortgages, putting at least 20% down can also eliminate the need for private mortgage insurance (PMI) at closing. A larger down payment may affect mortgage pricing as well, although the rate and terms available depend on the complete loan scenario.
However, putting more money down also means keeping less cash available for closing costs, moving expenses, repairs, emergencies, and other financial priorities.
Can You Get a Conventional Loan With Less Than 20% Down?
Yes. Some conventional mortgage programs allow eligible borrowers to purchase a one-unit primary residence with as little as 3% down.
If your conventional mortgage requires PMI, that does not necessarily mean you will pay it for the entire loan term. For many covered mortgages, borrowers can request PMI cancellation when the principal balance is scheduled to reach 80% of the home's original value, subject to applicable requirements. PMI generally terminates automatically when the scheduled balance reaches 78% of the original value if the loan is current.
What Other Low Down Payment Options Are Available?
Conventional financing is not the only alternative to putting 20% down. Depending on eligibility and property requirements, other options may include:
- FHA loans: Eligible borrowers may be able to purchase with a 3.5% down payment under FHA credit requirements. FHA loans include mortgage insurance.
- VA loans: Eligible Veterans and service members can often purchase with no down payment when the sales price does not exceed the appraised value and applicable requirements are satisfied. VA-backed purchase loans do not require monthly PMI.
- USDA loans: Qualified low- and moderate-income borrowers purchasing an eligible primary residence in an eligible rural area may have access to 100% financing through the USDA Single Family Housing Guaranteed Loan Program.
Each program has different eligibility, property, income, credit, fee, and underwriting requirements, so the smallest down payment is not automatically the best mortgage option.
Should You Make a Larger Down Payment?
The right down payment depends on your overall financial situation. Before putting additional cash into a home, consider how much money you will have remaining after closing.
A larger down payment can reduce your loan amount and monthly principal and interest payment. But using most of your available savings for the down payment could leave you less prepared for repairs, insurance deductibles, moving expenses, or other unexpected costs.
For Florida buyers, it is particularly important to budget for the complete housing expense, including property taxes, homeowners insurance, flood insurance when applicable, HOA or condo fees, and maintenance.
How Much Should You Put Down on a House?
Instead of automatically targeting 20%, ask your lender to compare several down payment scenarios. Look at the monthly payment, mortgage insurance, interest rate, closing costs, cash needed to close, and savings you would have remaining afterward.
For example, putting 10% down instead of 20% may preserve more cash, but it can also mean a larger mortgage and potentially mortgage insurance. Putting 20% down may reduce monthly costs, but it requires substantially more money upfront.
The better choice is the one that fits both your mortgage qualification and your broader financial plan.
The Bottom Line on the 20% Down Payment
You do not necessarily need to save 20% of a home's purchase price before becoming a homeowner. Qualified buyers may have conventional, FHA, VA, USDA, or other financing options requiring less money down.
Before deciding to wait and save more, compare the loan programs and down payment amounts actually available to you. Understanding the tradeoffs between upfront cash, monthly payment, mortgage insurance, and remaining savings can help you make a more informed decision.
Loan Wolf Lending can help Florida homebuyers compare mortgage programs and down payment options based on their individual circumstances. Call 754-755-3075 to discuss your homebuying plans.