Home buying myths

How much do I need to save for a down payment?

Somewhere along the way 20% became gospel. It has cost a generation of buyers years of waiting for a number no loan program actually requires.

See every option

Last reviewed 16 September 2026

The short answer

Far less than 20%. Conventional programs start at 3%,S13 FHA at 3.5% with a 580 score,S12 and VA and USDA at zero for eligible buyers. On the $434,100 median home, 3% is about $13,000 — not $86,800.S2

Where 20% came from

Twenty percent is the threshold above which you avoid private mortgage insurance. That's the entire origin. It's the point at which one specific monthly fee disappears — never a requirement to buy a house.

Cash needed at each option

$434,100 median existing home, July 2026

Down payment cash required by loan program VA / USDAConventional 97FHA ConventionalFirst-time medianNo PMI 0% down3% down3.5% down 5% down10% down20% down $0$13,023$15,194 $21,705$43,410$86,820 Closing costs of roughly 2–5% of the price sit on top of every bar. Budget them separately.
Median existing-home price $434,100, July 2026.S2 FHA minimum per HUD;S12 conventional 3% via HomeReady and Home Possible.S13 Illustrative example, not a quote.

What the myth costs: eleven years

The real-world figure isn't 20% either. The median first-time buyer put down 10% — itself a multi-decade high — while repeat buyers, rolling equity from a previous sale, put down 23%.S14 The people you picture putting 20% down mostly already owned a house.

Years to save, at $500 a month

No investment return assumed

Time required to save 5% versus 20% 04 yrs8 yrs 12 yrs16 5% down $21,705 3.6 years 20% down $86,820 14.5 years The gap is 10.9 years — a decade of rent paid, prices moved, and compounding not happening. Adding an investment return shortens both timelines but widens the gap between them.
Calculated on the $434,100 median price at $500 saved monthly with no return assumed. Illustrative example.

What each option costs monthly

OptionDownCashP&IInsuranceAll-inInsurance ends
Conventional 973%$13,023$2,734$263$3,540yr 12.3
FHA3.5%$15,194$2,767$192$3,502never
Conventional5%$21,705$2,678$258$3,478yr 11.6
First-time median10%$43,410$2,537$244$3,323yr 9.3
No mortgage insurance20%$86,820$2,255—$2,797n/a

All-in includes property tax and insurance at 1.5% of value annually ($543/mo), which varies enormously by county. Rate 6.76%.S1 Conventional PMI estimated at 0.75%/yr of the loan balance;S5 "insurance ends" is when the balance reaches 78% of the original price on schedule, with no appreciation.S15 The FHA row uses the actual 0.55% annual MIP and adds the 1.75% upfront premium ($7,331) to the loan, as FHA borrowers normally do.S20 Illustrative example, not a quote.

The FHA row hides the real trade. FHA mortgage insurance is cheaper monthly — $192 against $263 — because the rate is 0.55% rather than the ~0.75% a conventional lender charges.S20 But below 10% down it lasts the life of the loan, where conventional PMI must be cancelled at 78% equity. Over thirty years that's $76,450 of FHA insurance against $38,950 of conventional PMI that stops in year 12. FHA buys you a lower credit bar and a lower payment, and charges you twice over for it.

Read the 10% and 20% rows honestly, because it cuts both ways. The extra $43,410 does buy something real: about $526 a month, roughly half PMI disappearing and half interest you no longer owe. Against the extra cash that's about a 13.5% annual return — better than the stock market's long-run average. Anyone telling you a large down payment is financially foolish is wrong.

The argument was never that 20% is a bad deal. It's that 20% costs eleven extra years, and those years aren't free either. The 3% option isn't better than the 20% option — it's better than the 20% option a decade from now, which is the only comparison actually on the table.

PMI is a fee with an expiration date

This is the reframe that should change your decision. Federal law puts two dates on private mortgage insurance.S15

Equity growth and the two PMI milestones

5% down · 6.76% fixed · no appreciation assumed

PMI cancellation timeline by equity, 5% down 5%10% 15%20%24% 20% equity, year 10.6 — request cancellation year 11.6 — automatic yr 0yr 4 yr 8yr 12 This is the slow path — it assumes zero appreciation. If values rise, a reappraisal gets you there far sooner. On a $434,100 home at 5% down, equity reaches only 9.5% by year 4: early amortization is nearly all interest.
Homeowners Protection Act of 1998: cancellation on request at 80% loan-to-value with good payment history; automatic termination at 78%, based on the original amortization schedule.S15 Milestones computed from the exact amortization schedule on a $434,100 price, 5% down, 6.76% 30-year fixed: 80% loan-to-value is reached in month 127 and 78% in month 139.

So the real comparison isn't "PMI forever versus no PMI." It's about $258 a month for eleven or twelve years on the slow path — sooner if the home appreciates — against eleven more years of renting while prices and rates do whatever they do.

The genuine case for a larger down payment is different and worth respecting: a permanently lower payment, less risk of being underwater if values fall, and a stronger offer in a competitive market. Those are real. "Because 20% is the rule" is not.

What to do next

  1. Check whether you qualify for zero down

    VA and USDA both require nothing down and most people never check. USDA eligibility maps cover a surprising amount of suburban territory. Fifteen minutes, potentially tens of thousands of dollars.

  2. Look up your state and city assistance programs

    Most states run grant or forgivable-loan programs for first-time buyers, and many cities stack their own on top. Chronically underused because nobody advertises them. Search your state housing finance agency by name.

  3. Budget closing costs separately

    Roughly 2–5% of the price, on top of the down payment. This is the line item that derails ready buyers three weeks before closing.

  4. Keep the fund in cash

    Buying within three years? High-yield savings or T-bills. A 20% drawdown six weeks before closing isn't a risk worth an extra point of expected return.

  5. Have a lender price two scenarios side by side

    Same house, your realistic down payment and 20%. Two Loan Estimates next to each other settles this in four minutes.

Related questions

Can family gift me the down payment? Generally yes, with a documented gift letter. Some programs require a minimum from your own savings. In the most recent NAR survey, 22% of first-time buyers received a gift or loan from family or friends.S14

Can I borrow from my 401(k)? You can, and about a quarter of first-time buyers tap retirement assets.S14 It's also among the most expensive routes once you count lost compounding and repayment-on-job-loss. Exhaust assistance programs first.

Does a bigger down payment get a better rate? Modestly, in tiers. The larger effect is eliminating PMI at 20%. Credit score usually moves your rate more.