Only 8 out of 100 people know the minimum down payment required for a conventional home loan. Most overestimate what’s really needed. If you want more information about what’s actually required, talk to a trusted lender.

Most People Overestimate the Down Payment for a Home—Here’s What You Actually Need

Only 8 out of 100 people know the minimum down payment required for a conventional home loan. Most buyers think they need 10–20% down—and that misconception keeps a lot of would-be homeowners on the sidelines. The truth: many conventional loans allow as little as 3% down for eligible borrowers (often first-time buyers), and around 5% down for others. Requirements vary by lender and program, but the number is usually far lower than people expect.

Why this matters

Overestimating your down payment can delay your plans by years. If you’re saving for 20% when you could qualify with 3–5%, you might be missing out on time in the market, equity growth, and the stability of owning.

Quick myth-busting

• Myth: You must have 20% down.

  
  Fact: 3–5% down is common for conventional loans (if you qualify). 20% is optional—it helps you avoid PMI, but it’s not required.

• Myth: Less than 20% means a bad loan.

  Fact: Lower down payments are standard products backed by guidelines. They can be smart tools when used responsibly.

• Myth: If I don’t have 20%, I should wait.

  
  Fact: Waiting can make sense in some cases, but not always—especially if prices or rents are rising faster than your savings.

What lenders actually look at

Beyond your down payment, lenders focus on:

• Credit score & history (payment reliability)

• Debt-to-income ratio (DTI) (how much of your income goes to debt)

• Income and job stability

• Assets/reserves (savings left after closing)

PMI isn’t a dealbreaker

If you put less than 20% down on a conventional loan, you’ll typically have private mortgage insurance (PMI). PMI protects the lender, but it’s temporary—you can usually request removal once you reach about 20% equity (or it drops off automatically at a certain point). The cost varies by credit score, down payment, and loan type.

A quick example

Imagine a $350,000 home:

• 3% down = $10,500 (plus closing costs)

• 20% down = $70,000 (plus closing costs)

That gap is huge. Yes, 20% down avoids PMI and lowers your monthly payment—but needing $70,000 up front can push homeownership far out of reach. For many buyers, getting in sooner with 3–5% down, then refinancing or removing PMI later, is a practical path.

Don’t forget closing costs

Plan for 2–4% of the purchase price for closing costs (lender fees, title, escrows, etc.). In some markets, you can negotiate seller credits to help offset these. There are also down payment assistance programs and grants for eligible buyers.

When a larger down payment still makes sense

• You want the lowest possible monthly payment

• You’re aiming to avoid PMI entirely

• You expect tight qualification on DTI and need a smaller loan amount

• You’re investing and want to maximize cash flow from day one

How to get started (in plain steps)

1. Talk to a trusted lender for a pre-approval and a side-by-side comparison at 3%, 5%, 10%, and 20% down.

2. Review PMI scenarios (cost and how/when it can be removed).

3. Ask about programs you might qualify for (first-time buyer options, assistance, grants).

4. Know your numbers (payment comfort zone, emergency savings after closing).

5. Build a plan—whether that’s buying now with a smaller down payment or waiting a set period for a larger one.

Bottom line:

You probably don’t need as much down as you think. If you want personalized numbers and today’s program options, talk to a trusted lender—a 15-minute conversation can replace a year of guessing.

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Sources Used for data:

https://www.firsthomeiq.com/2025report