Why 20% Isn’t Mandatory Anymore
For decades, 20% down has been considered the “gold standard” for buying a home. That’s because putting 20% down:
- Gives you instant equity
- Let’s help you avoid extra costs like Private Mortgage Insurance (PMI)
- Reduces monthly payment burden
But today, lenders and government-backed programs have made homeownership much more accessible to people without large savings. It’s now common for buyers to put down much less even as little as 3% or even nothing at all while still qualifying for a mortgage. (CNBC)
Here are some of the most popular alternatives 👇
Your Main Options for Low- or No-Down-Payment Home Buying
1. Federal Housing Administration (FHA) Loans — Down Payment as Low as 3.5%
- FHA loans allow qualified buyers to make a down payment of just 3.5% (if credit score is 580 or above). (fha.com)
- FHA also tends to have more flexible requirements on debt-to-income ratio and credit history compared to many conventional loans, which can help first-time buyers or those with credit challenges. (Mortgage-World.com)
- Trade-off: Because the down payment is small, FHA loans require a mortgage insurance premium — part upfront and part ongoing — until you meet certain equity milestones. (Mortgage-World.com)
✅ Best for: First-time buyers, lower-to-moderate income households, buyers with modest savings.
2. Low-Down-Payment Conventional Loans (3%–5%)
Some conventional mortgage programs allow as little as 3% down for qualified buyers. (LendingTree)
- If you put less than 20% down, you’ll likely have to pay PMI (Private Mortgage Insurance) a monthly premium that protects the lender. (ConsumerAffairs)
- Once you reach 20% equity (through paying down the mortgage or market appreciation), PMI can usually be canceled, reducing your monthly payment over time. (Zillow)
- Conventional loans tend to have stricter credit and income requirements than FHA, but offer flexibility and sometimes better long-term costs for financially stable buyers. (Clever Real Estate)
✅ Best for: Buyers with good credit and stable income who want lower upfront costs but plan to build equity.
3. Zero-Down or No-Down-Payment Mortgages: VA & USDA Loans
If you qualify, two major government-backed programs allow little to no down payment:
- U.S. Department of Veterans Affairs (VA) Loans — available to eligible veterans, active-duty service members, and some surviving spouses. VA loans may offer 0% down, and they typically don’t require PMI. (Consumer Financial Protection Bureau)
- United States Department of Agriculture (USDA) Loans — for homes in certain rural or suburban areas and for buyers meeting income limits. These also offer 0% down under qualifying conditions. (Forbes)
✅ Best for: Eligible veterans, borrowers seeking rural housing, or households needing maximum financing with minimal upfront cash.
What You Should Know When You Put Down Less
Putting down less than 20% is often practical, but it comes with trade-offs:
- You’ll pay mortgage insurance (PMI or MIP): This increases your monthly payment. With FHA, mortgage insurance lasts much longer (often the entire loan) unless you refinance or meet certain equity thresholds. (Mortgage-World.com)
- Higher loan-to-value means higher risk: Because the lender finances more of the purchase price, any market downturn or home value drop affects you more.
- Stricter requirements in some cases: Especially for conventional 3% down loans, lenders may require a higher credit score (often 620+), good income stability, and a lower debt-to-income ratio. (LendingTree)
- You build equity more slowly: With less initial equity, it may take longer to reach 20% equity, which often is needed to refinance or drop insurance premiums for better rates.
How to Decide What’s Right for You
Here’s a quick decision framework:
| Your Situation / Goal | Recommended Option | Why |
|---|---|---|
| Limited savings, modest income, first-time buyer | FHA loan with 3.5% down | Lower down payment + flexible approval criteria |
| Good credit and income, want lower long-term costs | Conventional 3%–5% down | Lower mortgage insurance, equity build up faster |
| Veteran or eligible spouse | VA loan (0% down) | No down payment, no PMI, often great rates |
| Buying in a rural/suburban area and meeting income limits | USDA loan (0% down) | Rural housing support, low upfront cost |
| Minimal cash but want homeownership now | Any low- or no-down option | Get in sooner start building equity instead of renting |
Tips to Make Low-Down Payment Buying Work in 2025
- Check your credit and DTI ratio early — conventional loans work best with a credit score ≥ 620; FHA loans are more flexible but still require a responsible credit history. (My Perfect Mortgage)
- Budget for PMI / MIP — factor this into your monthly payment planning.
- Consider saving for closing costs — low down payment doesn’t mean 100% free: closing costs, inspection, insurance, taxes still apply.
- Research down-payment assistance and gift funds — some state/local programs or family gifts can help cover down payment or closing costs. (fairway.com)
- Buy within your comfortable budget — avoid stretching finances too thin just to meet loan requirements.
- Pay attention to loan limits — some low down payment programs are only available for conforming loan limits (not luxury/high-priced homes). (Gustan Cho Associates Mortgage Brokers)
FAQ: Common Questions About Buying Without 20% Down
Q: Do I absolutely need 20% down to avoid mortgage insurance?
A: No, many loan types allow much lower down payments. But if you put less than 20%, expect PMI or other insurance charges.
Q: Are low-down-payment loans only for first-time buyers?
A: Not always. FHA is often used by first-time buyers but permits repeat buyers. Conventional 3% options or VA/USDA loans may have other eligibility rules.
Q: Can low-down-payment loans work if my credit isn’t perfect?
A: Yes, especially FHA loans, which allow lower credit scores compared to conventional loans; however, pricing and insurance costs may be higher.
Q: Will I ever get rid of PMI or MIP?
A: With conventional loans, PMI can be canceled once you reach ~20% equity. With FHA, mortgage insurance often lasts until refinancing or paying down principal significantly, so check the terms.
Q: Is it wiser to wait and save 20% down before buying?
A: It depends on your financial situation, market, and goals. Low-down-payment loans make sense if you want to start building equity now and can comfortably handle monthly payments, including insurance.
Conclusion: Low-Down Payment ≠ Risky — If Done Right
The myth that you need 20% down to buy a home is outdated. With many flexible loan options today, FHA, conventional 3%, VA, USDA, financing a home with a small (or even zero) down payment is achievable.
The key is understanding the trade-offs: insurance costs, stricter requirements, and slower equity build-up. But if you enter with a solid financial plan, good credit, and realistic expectations, purchasing a home with a lower down payment can be a smart, accessible step toward homeownership.
