How Much Down Payment Do You Need? All Options Compared by True Cost

How much down payment do you need for a house? The minimum depends on loan type: 3% for conventional loans, 3.5% for FHA, and 0% for VA and USDA loans. On a $400,000 home that is $12,000, $14,000, or $0 at closing. The traditional 20% ($80,000) eliminates private mortgage insurance but is not required — and locking that capital in equity has an opportunity cost most buyers overlook.

How much down payment for a house

Monthly payment and total 30-year cost comparison

Assumptions: $400,000 purchase price, 30-year fixed mortgage at 7.0%, standard property tax and insurance costs not shown (these are identical across scenarios).

The 20% down payment saves $809/month compared to the 3% scenario — and $95,050 in total interest over 30 years. But it requires $68,000 more upfront. The question is what that $68,000 would earn if invested instead.

Worked example: two buyers, $400,000 home — 5% vs 20% down

Buyer A puts 5% down ($20,000). Buyer B puts 20% down ($80,000). Both take a 30-year fixed mortgage at 7.0%. Buyer A invests the $60,000 difference in a diversified index fund averaging 7% annual returns. Who is ahead at 5 years and 10 years?

At 7% mortgage rates, the math is tighter than it would be at 3%. The invested $60,000 grows to $118,051 after 10 years, but Buyer A also paid $65,800 more in mortgage costs. The net difference is $52,251 in favor of Buyer A — but only if the investment actually earns 7% consistently. If mortgage rates were 3–4%, the invested capital would likely win by a much wider margin.

Down payment assistance and zero-down programs

PMI: cost, duration, and how to cancel it

Private Mortgage Insurance protects the lender — not you — in the event of default. It is required on conventional loans when the loan-to-value (LTV) ratio exceeds 80%, meaning your down payment is below 20%. Key facts:

• Cost: PMI typically runs 0.5%–1.5% of the loan amount per year. On a $360,000 loan (10% down on a $400,000 home), PMI costs $1,800–$5,400 annually, or $150–$450 per month. The rate depends on your credit score, LTV, and loan term.
• FHA MIP is different. FHA loans carry a Mortgage Insurance Premium, not PMI. For loans with less than 10% down, MIP continues for the life of the loan — it cannot be cancelled without refinancing out of the FHA loan entirely.
• How to cancel PMI on a conventional loan: Under the federal Homeowners Protection Act, lenders must automatically cancel PMI when your LTV reaches 78% through scheduled payments. You can request cancellation at 80% LTV (20% equity). If your home has appreciated, a formal appraisal showing 80% LTV can accelerate cancellation even before the scheduled paydown date.
• Time to 20% equity on a $380,000 loan (7% rate): Through principal paydown alone, this takes approximately 11 years. Appreciation accelerates the clock. In a market with 4% annual appreciation, the home's value grows while the loan balance shrinks — 20% equity through combined paydown and appreciation is typically reached in 5–7 years.

Authoritative sources

• U.S. Department of Housing and Urban Development — Local Homebuying Resources — HUD's official directory of state and local down payment assistance programs, FHA loan resources, and HUD-approved homebuyer counseling agencies available in every state.
• Consumer Financial Protection Bureau — Loan Options Explorer — CFPB's interactive guide to comparing conventional, FHA, VA, and USDA loan programs, including down payment requirements, PMI implications, and qualification criteria for each type.

Key takeaways

• 20% down is not required. VA and USDA loans allow 0% down; FHA requires 3.5%; conventional loans allow as little as 3%. The real cost difference is in PMI and total interest — not the monthly payment headline.
• On a $400,000 home at 7%, the 3% down scenario costs $2,938/month including PMI. The 20% down scenario costs $2,129/month — a $809/month difference that persists until PMI cancels on the smaller down payment option.
• FHA MIP is permanent for loans with less than 10% down. The only exit is refinancing into a conventional loan once you reach 20% equity — adding a transaction cost that must be factored into the true cost of an FHA loan.
• Whether 5% down beats 20% down financially depends on what you do with the capital not deployed as a down payment. At 7% mortgage rates, the math is tighter than at historically low rates — but a consistently invested surplus can still outpace the PMI and interest cost differential.
• State and federal down payment assistance programs can dramatically reduce the upfront requirement for eligible buyers. HUD-approved counseling agencies can identify programs available in your specific county and income bracket.

Frequently asked questions

Can I buy a house with no down payment?

Yes, in specific circumstances. VA loans — available to eligible veterans, active duty service members, and surviving spouses — allow 0% down with no PMI, though a VA funding fee of 1.25%–3.3% typically applies. USDA loans allow 0% down for homes in eligible rural and suburban areas, subject to income limits, with a 1% upfront guarantee fee and 0.35% annual fee. Outside these programs, most conventional loans require a minimum 3% down payment, and FHA loans require 3.5% with a 580+ credit score. Down payment assistance programs administered at the state level can cover part or all of the minimum requirement for qualifying buyers.

How much does PMI cost and how do I get rid of it?

PMI typically costs 0.5%–1.5% of the loan amount per year, depending on your credit score, loan-to-value ratio, and lender. On a $360,000 loan, that is $1,800–$5,400 annually — $150–$450 per month. Under the federal Homeowners Protection Act, lenders must automatically cancel PMI when your LTV reaches 78% through scheduled payments. You can request cancellation at 80% LTV, which may come sooner if your home has appreciated. A formal appraisal confirming 80% LTV is typically required for early cancellation based on appreciation. FHA MIP works differently — it does not cancel for loans with less than 10% down and must be eliminated through refinancing.

Is it better to put 20% down or invest the extra cash?

The mathematically correct answer depends on your mortgage rate versus expected investment returns. At a 7% mortgage rate, putting down extra principal to avoid PMI and reduce the loan carries a guaranteed effective return equal to the rate — hard to beat reliably through investment. At historical rates of 3–4%, a diversified portfolio averaging 7–10% annual returns historically outperforms the savings from a larger down payment. Run the specific numbers for your scenario: what is the monthly PMI cost, what is your effective mortgage rate, and what return can you realistically achieve on the invested capital over your expected holding period?

Does a larger down payment always mean a lower mortgage rate?

A larger down payment can reduce your rate, but the effect is more modest than most buyers expect. Conventional loan pricing tiers by loan-to-value ratio — dropping from 95% LTV (5% down) to 80% LTV (20% down) can reduce the rate by 0.125%–0.375% and eliminates PMI entirely. Further rate improvements appear at 75% and 60% LTV for some loan products. However, your credit score has a larger impact on your mortgage rate than your LTV above 20% down. A borrower with a 760 credit score at 10% down will often qualify for a better rate than a borrower with a 680 score at 20% down.

How long does it take to save for a down payment?

On a $400,000 home, a 10% down payment ($40,000) plus closing costs of 2–3% ($8,000–$12,000) means accumulating $48,000–$52,000 in total upfront funds. At $1,000 saved per month, that is 4–4.5 years. A high-yield savings account at 4.5–5% APY (current as of 2026) would grow a $1,000/month contribution to $52,000 in approximately 43 months. First-time homebuyers can also make penalty-free IRA withdrawals of up to $10,000 for a first home purchase, and many states offer down payment assistance grants or forgivable loans that can close the gap by $5,000–$20,000 depending on the program.