How Much Down Payment Do You Actually Need to Buy a House?

The 20% rule is not a rule. Here is what you actually need down, and how down payment assistance can cover most or all of it.

Almost everyone who thinks they cannot buy a house believes the same thing: they need 20% down.

You do not. That number is not a rule, not a law, and not what most buyers actually put down. It comes from one specific benefit, and there are programs that will cover most or all of your down payment for you.

Where the 20% number actually comes from

Twenty percent is the threshold where conventional loans stop requiring private mortgage insurance. That is the whole reason the number exists.

PMI is real money and avoiding it is a legitimate goal. But it is a monthly cost, not an entry requirement. Waiting years to save 20% while home prices and rent both climb has its own cost, and for most buyers that cost is larger than the PMI would have been.

What you actually need, by loan type

FHA: 3.5% down. The workhorse for buyers with average credit or limited savings. On a $300,000 house that is $10,500 rather than $60,000.
Conventional: as little as 3% down. Available to qualified buyers, and yes, that is lower than FHA. It comes with PMI until you reach 20% equity, and the PMI drops off automatically as you pay down.
VA: zero down. For eligible veterans and service members, with no monthly mortgage insurance at all.
USDA: zero down. For properties in eligible rural and suburban areas, which cover more of the map than most people assume, including areas well outside Chicago.

So before any assistance enters the picture, the real floor is 3% to 3.5% for most buyers, and zero for two large groups.

Then there is assistance, which changes the math again

This is the part that most buyers do not know exists.

Down payment assistance programs provide 3.5% to 5% of the purchase price toward your down payment. On an FHA loan requiring 3.5% down, a 3.5% assistance program covers the entire down payment.

The assistance comes in three shapes, and the difference matters more than the amount:

A grant. Between 1% and 3.5% depending on program and loan type. You do not repay it. There is no second payment and no second lien to worry about later.
A forgivable second mortgage. 3.5% at a 0% rate with no monthly payment, forgiven over a 30-year term. It sits on your title but you never write a check for it.
A repayable second mortgage. 3.5% or 5%, repaid over 10 to 15 years at a rate about 2% above your first mortgage. Larger assistance, and the cost is known up front.

Three things people get wrong about assistance

You do not have to be a first-time buyer. Every one of these programs allows first-time buyers and none of them require it. If you owned before and are coming back into the market, you are still eligible.

Income limits do not work the way you would guess. Grant programs are generally capped by area median income for the county you are buying in. The repayable second mortgage options often have no income limit at all. Higher earners frequently assume assistance is not for them and are wrong.

Credit requirements are lower than expected. These programs generally start around a 640 score, and one structure reaches down to 600.

What you still need besides the down payment

Assistance covers the down payment. It does not cover everything.

Closing costs are separate, though seller credits and lender credits can offset them. Depending on your score and loan type you may need one to three months of payments in reserve after closing. And a second lien, even a forgivable one at 0%, is still a lien that gets addressed when you sell or refinance.

None of that is a reason to skip the programs. It is a reason to plan with real numbers instead of assumptions.

Watch how it works

I walked through the process end to end in this video, including what the application looks like and where assistance shows up in the file.

Find out what you actually need

The honest answer to "how much do I need down" is that it depends on your credit, your income against the county limit, the loan type and the property. But it is almost never 20%, and for a lot of buyers it is close to nothing.

Tell me your rough score, your income and where you are looking, and I will tell you what you would actually need to bring to closing.

Full details on the programs: down payment assistance programs.

Dan Frio is a federally registered mortgage loan originator with PBT Bancorp, NMLS #257781. Able to assist borrowers with mortgage financing nationwide. Serving Chicago, Kane County and the Fox Valley.

Program details are general, vary by program, loan type, county and property, and are subject to change without notice. This is not a commitment to lend and not all applicants will qualify.

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