Almost everyone assumes you need the famous 20% down payment to buy a home. It’s the number that gets repeated the most, but it isn’t a fixed rule: in many cases you can buy with less, though that comes with a different cost worth understanding before you decide.
Here’s what a down payment actually is, where the 20% myth came from, what PMI is, and how to think about a realistic number for you without draining your emergency fund to hit it.
What a down payment is
A down payment is the portion of the home’s price you pay out of pocket, in cash, at the time of purchase. The rest is covered by the mortgage. If you buy a $350,000 home with a 10% down payment, you’re putting down $35,000 out of pocket and borrowing $315,000.
The bigger the down payment, the smaller the loan — and that affects your monthly payment, the total interest you’ll pay, and whether or not you’ll need extra insurance.
The 20% myth
20% became the “standard” number because it’s the threshold many lenders use to waive the requirement for extra mortgage insurance. But it is not a legal minimum or a requirement to buy a home. Low-down-payment options exist — some programs allow as little as 3% to 5% down, depending on the country, the loan type, and your credit profile.
Put differently: 20% is a comfortable target, not an entry requirement.
What PMI is (and why it shows up if you put down less than 20%)
When your down payment is below 20%, most lenders require Private Mortgage Insurance, known as PMI. It’s insurance that protects the lender — not you — in case you stop making payments on the loan.
PMI gets added to your monthly payment as an extra cost, until you build up enough equity in the home (usually around 20%) and can request that it be removed. Other countries have similar mechanisms under different names, so it’s worth asking your local lender how it applies in your case.
The real tradeoff
Putting down less than 20% isn’t “free” — it comes with real consequences worth weighing.
- A bigger loan. A smaller down payment means you’re borrowing more money.
- More interest overall. A larger loan generates more accumulated interest over the years.
- A higher monthly payment, between the bigger loan and the added PMI.
- Less initial equity in the home, which gives you less cushion if you need to sell quickly or if the property’s value drops.
In exchange, you gain something valuable: you get into the market sooner, without waiting years to save a full down payment while prices (and rents) keep climbing.
So how much should you actually save?
There’s no single magic number, but here’s a way to think about it:
- If you can reach 20% without draining your savings, you avoid PMI and lower your monthly payment. A good option if it doesn’t leave you at zero.
- If 20% would take you years or leave you with no cushion, a smaller down payment (10%, 5%, or whatever your financing program allows) may make more sense, accepting the cost of PMI as part of the plan.
- Never drain your emergency fund to hit 20%. Homeownership brings unexpected expenses (repairs, maintenance) on top of the mortgage payment. Wiping out your cushion to chase a round number leaves you exposed.
The goal isn’t “20% no matter what” — it’s finding the down payment that lets you buy without putting yourself at financial risk.
A worked example with round numbers
Take a home that costs roughly $350,000:
- 20% down payment: about $70,000 out of pocket. A loan of around $280,000. No PMI.
- 10% down payment: about $35,000 out of pocket. A loan of around $315,000, plus the monthly cost of PMI until you build up enough equity.
The upfront difference is roughly $35,000 in cash you’d need to have available today. The long-term difference is a bigger loan, more total interest, and a somewhat higher monthly payment for as long as PMI applies. To see how these variables play out for your specific situation — including whether it makes more sense to keep renting while you save a bigger down payment — run the numbers in the rent vs. buy calculator.
FAQ
Is it true I need 20% no matter what to buy a home? No. It’s the most common threshold for avoiding PMI, but financing programs exist with much smaller down payments. It depends on the country, the lender, and your profile.
Is PMI forever? Not necessarily. Once you build up enough equity in the property (usually around 20%), in many cases you can request that it be cancelled.
Does putting down less mean I’ll get rejected for the loan? Not directly because of the down payment amount, but lenders do evaluate your down payment together with income, credit history, and debt levels.
Should I wait and keep saving until I hit 20%? It depends on how long that would take and how prices and rents move in your area in the meantime. Sometimes waiting ends up costing more than buying sooner with a smaller down payment.
Should I use my emergency savings to complete the down payment? That’s not recommended. Keeping an emergency cushion separate from your down payment protects you against the unexpected costs that come up more often once you own a home.
Bottom line
A 20% down payment is a comfortable target that helps you avoid PMI, but it isn’t a requirement to buy a home. Putting down less is possible and sometimes makes sense, as long as you understand the tradeoff: a bigger loan, more interest, and a higher payment while you carry mortgage insurance. What never makes sense is draining your emergency fund to hit a round number.
This article is educational and is not financial or lending advice. The figures are approximate examples: down payment percentages, financing program availability, and PMI rules (or their equivalent) vary by country, lender, and your individual profile. Always check with your financial institution or a local advisor before deciding.