You do not need to put 20% down to get a conventional loan. You can put down less, you'll just have to pay PMI (private mortgage insurance).
A bigger loan: Putting down less upfront means borrowing more to make the purchase, which makes for higher monthly payments and more interest paid over time. Higher costs: Your mortgage interest rate and loan costs could be higher if you put down less upfront.
Mortgages with down payments of less than 20% will require PMI until you build up a loan-to-value ratio of at least 80%. You can also avoid paying PMI by using two mortgages, or a piggyback second mortgage.
You do not have to put 20 percent down on a house. In fact, the average down payment for first-time buyers is between eight and 13 percent. There are also loan programs that let you put as little as zero down. However, a smaller down payment means a more expensive mortgage over the long term.
Despite misconceptions, most homeowners don't put 20% down
Despite this, the majority (59%) of current homeowners who have or have had a mortgage say their down payments were less than 20% of the home's purchase price, while just 29% put down 20% or more.
You may be able to get rid of PMI earlier by asking the mortgage servicer, in writing, to drop PMI once your mortgage balance reaches 80% of the home's value at the time you bought it.
Putting 20 percent or more down on your home helps lenders see you as a less risky borrower, which could help you get a better interest rate. A bigger down payment can help lower your monthly mortgage payments. With 20 percent down, you likely won't have to pay PMI, or private mortgage insurance.
Do you pay PMI with a conventional loan? Private mortgage insurance is required by most lenders when the borrower makes a down payment of less than 20% on a conventional loan.
The minimum down payment requirement for a conventional loan is 3% of the loan amount. However, lenders may require borrowers with high DTI ratios or low credit scores to make a larger down payment. Even if it's not required, if you're able to make a higher down payment, you may want to consider doing so.
Even though interest rates are still high, it's a great time to buy a house. The higher interest rates have priced some buyers out of the market, which means you could face less competition when you make offers. Plus, if interest rates do eventually go down significantly, you can always refinance to get the lower rate.
Putting down this amount generally means you won't have to worry about private mortgage insurance (PMI), which eliminates one cost of home ownership. For a $400,000 home, a 20% down payment comes to $80,000. That means your loan is for $320,000.
Most lenders require that you purchase private mortgage insurance (PMI) if your down payment is less than 20%. This insurance, which typically runs about 0.5 to 1.5% of your loan amount per year, is designed to protect the lender's investment in your home, signaling your commitment to the purchase.
The main disadvantage of a conventional loan is the requirement for a down payment, which can be quite large depending on the loan amount and the borrower's financial situation. Additionally, borrowers need to show that they have assets that can be used to pay off the loan as well as reserves in case of a hardship.
Credit Score Requirements
In 2024, borrowers may need a credit score of 620 or higher to qualify for a conventional loan, although some lenders may require even higher scores for a competitive interest rate. You must also have a clean credit history with no major issues like foreclosure or bankruptcy.
The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000. If you get a conventional loan, that is. You'll need $10,500, or 3.5% of the home price, with a FHA loan.
Benefits of a 20% Down Payment
Eliminates private mortgage insurance: On a conventional loan, you'll be able to avoid private mortgage insurance (PMI) with a 20% down payment. Depending on the situation, PMI can cost between 0.2% and 2% of your loan amount every year, so a large down payment could mean big savings.
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
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Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
This means that from the start of your purchase, you have 20 percent equity in the home's value. The formula to see equity is your home's worth ($200,000) minus your down payment (20 percent of $200,000 which is $40,000). You only own $40,000 of your home.
You typically have to pay PMI until you reach 20% equity in your home, at which point you can typically request cancellation. Additionally, your lender may be required to cancel PMI once your mortgage balance reaches 78% of the original home value, or 22% equity.
"Home sellers often prefer to work with buyers who make at least a 20% down payment," since "a bigger down payment is a strong signal that your finances are in order."
More first-time homebuyers are relying on their parents to co-sign loans and contribute to down payments. Home buyers are increasingly turning to family members, most often parents, for help buying a house in overpriced and undersupplied markets, reflecting a shift in the way many families finance homeownership.