20% Down? The Myth That Could Be Holding Home Buyers Back
A Surprisingly Persistent Myth
According to NerdWallet’s 2025 Home Buyer Report, 62% of Americans say that a 20% down payment is required to buy a home. But that’s not the case. And since 33% of non-homeowners say that not having enough money for a down payment is holding them back from buying a home at this time, this misconception could be stopping them unnecessarily.
Loans with Smaller Down Payments Usually Need Special Insurance
While a 20% down payment is not required to buy a home, smaller down payments often require a few extra steps. Lenders issuing conventional home loans typically require private mortgage insurance (PMI) if the down payment is under 20%. PMI protects the lender by offsetting the additional risk a lender takes when it accepts a smaller down payment. If you stop making payments on the loan, this insurance can pay out a portion of what’s still owed to the lender. However, if you default on your home loan, this insurance doesn’t protect you at all; defaulting will hurt your credit and put you at risk of foreclosure.
PMI is usually paid as part of your monthly mortgage payment; with a conventional mortgage, you can request the lender cancel it when you reach 20% equity on your home.
How Low Can You Go?
The lowest down payment that lenders actually require depends on the kind of mortgage you’re getting. For example, Fannie Mae HomeReady and Freddie Mac Home Possible offer eligible buyers conventional mortgages with a 3% down payment. FHA loans, backed by the Federal Housing Administration, can have down payments as low as 3.5%. USDA loans for people who live in rural areas, VA loans for veterans, and some others require no money down (also known as a 0% down payment). However, in addition to mortgage insurance, these low-downpayment mortgages can have other upfront fees.
Down payment assistance programs – often grants or loans from government agencies – can also help cover some upfront costs of home ownership.
Larger Down Payments Are Still Good, If You Can Afford Them
That said, there are many benefits to larger down payments. The more money you put down, the less you’re borrowing – which means it’ll be easier to pay off, in smaller payments or over less time. A down payment calculator can help illustrate this. A larger down payment might also be able to get you a lower interest rate. And putting more money down also means owning a larger share of the home’s equity right away. While a mortgage is debt, the equity you actually hold in the home is an asset.
Conclusion
The 20% down payment myth is a common misconception that may be holding many home buyers back. While larger down payments have their benefits, they are not required to buy a home. With the right mortgage options and assistance programs, many home buyers can put down less than 20% and still achieve homeownership.
FAQs
* What is private mortgage insurance (PMI)?
+ PMI is insurance that protects the lender by offsetting the additional risk a lender takes when it accepts a smaller down payment.
* Can I cancel PMI on my mortgage?
+ Yes, you can request the lender cancel PMI when you reach 20% equity on your home.
* What are some low-downpayment mortgage options?
+ Fannie Mae HomeReady, Freddie Mac Home Possible, FHA loans, USDA loans, and VA loans are some examples of low-downpayment mortgage options.
* Are there down payment assistance programs available?
+ Yes, there are grants and loans from government agencies that can help with down payments.
