How Much Down Payment Do You Need?

The "you need 20% down" rule is one of the most persistent myths in US home buying. In practice the minimum depends entirely on which loan program you use — and two of the four major programs require nothing down at all. What 20% actually buys you is the removal of mortgage insurance, not the loan itself.

The minimums by program

• VA — 0%. Eligible veterans, active-duty service members, and some surviving spouses can finance 100% of the purchase price with no down payment and no monthly mortgage insurance.
• USDA — 0%. Also 100% financing, but restricted to properties in USDA-eligible rural and many suburban areas, with household income limits by county.
• FHA — 3.5%. The standard minimum with a credit score of 580 or higher. Below 580, FHA requires 10% down.
• Conventional — 3% to 20%. First-time buyers can qualify for 3% down programs; repeat buyers typically start at 5%. Second homes and investment properties usually require 10–25%. At 20% you avoid mortgage insurance.

On a $400,000 home, that's $0 with VA or USDA, $14,000 with FHA, $12,000 on a 3% Conventional, and $80,000 to reach 20%.

Conventional PMI: the one you can cancel

Put less than 20% down on a Conventional loan and the lender requires private mortgage insurance. PMI typically runs about 0.3% to 1.5% of the loan amount per year, billed monthly, with the rate driven by your credit score and loan-to-value ratio. On a $388,000 loan at 0.6%, that's roughly $194 a month.

The important part: PMI is temporary. You can request cancellation once you reach 20% equity, and the servicer must terminate it automatically at 22% equity based on the original amortization schedule. Between appreciation and principal paydown, many borrowers drop PMI within a few years — which makes a low-down-payment Conventional loan a strong option if your credit is good.

FHA MIP: cheaper to enter, harder to shed

FHA charges mortgage insurance in two layers:

• Upfront MIP of 1.75% of the loan amount, almost always financed into the loan rather than paid in cash. On a $386,000 base loan that adds about $6,755 to your balance.
• Annual MIP of about 0.55% of the loan, divided into monthly payments — roughly $177 a month on that same loan.

The catch: on FHA loans with less than 10% down, annual MIP lasts for the life of the loan. It does not fall off at 20% equity the way PMI does. With 10% or more down, MIP drops after 11 years. Borrowers who start with FHA because of credit or DTI frequently refinance into a Conventional loan later, once their score and equity support it, specifically to shed MIP.

VA funding fee: one-time, no monthly cost

VA loans carry no monthly mortgage insurance at all. Instead there's a one-time funding fee, generally in the 1.25% to 3.3% range depending on your down payment and whether it's your first VA loan. It's normally financed into the loan, so it costs nothing at closing. Veterans receiving VA disability compensation are typically exempt from the fee entirely. For an eligible borrower, VA is usually the cheapest way to buy with little or no money down.

USDA guarantee fee: both layers, but small

USDA mirrors FHA's structure at lower rates: an upfront guarantee fee of about 1% of the loan, financed in, plus an annual fee of roughly 0.35%paid monthly. On a $400,000 purchase with no money down, that's about $4,000 added to the balance and around $117 a month. Eligibility hinges on the property's location and your household income, not on being a first-time buyer.

How this compares to Canada

If you're comparing against the Canadian system, the structures are genuinely different. Canada has one sliding scale: the minimum down payment is 5% up to $500,000, 5% on the first $500,000 plus 10% above it to $1.5 million, and 20% at or above $1.5 million. Any mortgage under 20% down is insured by CMHC (or Sagen/Canada Guaranty), with a single premium of 2.8% to 4.0% of the loan added to the balance and no monthly component.

So Canada bundles mortgage insurance into one financed premium tied to home price, while the US splits it across four programs with different minimums, different fee structures, and — critically — different cancellation rules. In the US, which program you choose is as consequential as how much you put down.

Don't forget closing costs and reserves

Beyond the down payment, budget 2% to 5% of the purchase price for closing costs: lender origination and appraisal fees, title insurance and settlement charges, recording and transfer taxes, prepaid property taxes and homeowners insurance, and escrow setup. Many programs also want to see reserves — a few months of housing payments left in the bank after closing. Gift funds from family are allowed on all four programs with a signed gift letter, and seller concessions or lender credits can cover part of the closing costs when negotiated into the contract.

The bottom line

Don't decide how much to put down before you know which program fits. The right question isn't "can I get to 20%?" — it's which combination of down payment, mortgage insurance structure, and rate produces the lowest true cost over the years you actually plan to keep the loan. A licensed loan originator who works across all four programs can price them side by side on your numbers.