Do You Really Need 20% Down to Buy a House?

A house illustration with a piggy bank, coins, a pie chart, and rising bar graphs, showing down payment strategies.

Do You Really Need 20% Down to Buy a House?

For years, many homebuyers have assumed that putting 20% down is the standard way to buy a home.

It can be a great option, but it is not always necessary—and it is not automatically the smartest financial decision for every borrower.

Depending on the loan program and your overall financial profile, you may be able to purchase a primary residence with significantly less than 20% down. The real question is whether putting more money into the property provides enough benefit to justify tying up that cash.

Why Do People Put 20% Down?

One of the biggest reasons borrowers choose a 20% down payment on a conventional loan is to avoid Private Mortgage Insurance (PMI).

A larger down payment can also reduce your loan balance and monthly mortgage payment.

But putting more money down means having less cash available after closing.

That matters because buying a home comes with other expenses, including:

  • Moving costs

  • Repairs and improvements

  • Furniture

  • Emergency reserves

  • Unexpected maintenance

For some buyers, keeping additional cash available may be more valuable than reducing the mortgage balance as much as possible.

You May Be Able to Buy With Much Less Than 20% Down

There are several mortgage programs that allow qualified borrowers to purchase with a relatively small down payment.

Certain conventional programs may allow as little as 3% down, while FHA financing generally allows qualified borrowers to purchase with 3.5% down.

Eligible veterans and service members may also have access to VA financing with no down payment required by the VA in many situations, and VA loans do not require monthly private mortgage insurance.

If you’re eligible for VA financing, you can learn more in our guide to military family financing.

The important point is that 20% down is an option, not a universal requirement.

What Is the Advantage of Putting Less Down?

The biggest advantage is liquidity.

Suppose you have enough money to put 20% down but choose to put 10% down instead.

Your loan balance will be higher, and mortgage insurance may apply, but you also keep more money available.

That retained cash could be used to:

  • Maintain an emergency fund

  • Make improvements to the home

  • Pay down higher-interest debt

  • Keep additional savings invested

  • Maintain reserves for another property purchase

This is why I don’t believe the down-payment decision should be made based on one percentage alone.

For real estate investors, preserving capital can be particularly important when the goal is to continue acquiring properties. You can see an example of this approach in our article on scaling an investment portfolio using cash flow qualification.

But What About Mortgage Insurance?

Mortgage insurance absolutely needs to be part of the comparison.

On many conventional loans with less than 20% down, PMI will apply. However, PMI does not necessarily remain for the entire life of the loan.

Under applicable requirements, conventional borrowers may eventually be able to request cancellation of PMI, and automatic termination may occur when certain loan-to-value requirements are met.

Instead of automatically avoiding PMI at all costs, I prefer to look at the actual numbers.

How much will the mortgage insurance cost?

How much additional cash would you need to put down to eliminate it?

And is tying up that additional money worth the monthly savings?

Sometimes the answer is yes. Sometimes it isn’t.

Your Down Payment Should Fit Your Overall Financial Picture

There are also situations where putting more money down may make perfect sense.

A larger down payment can:

  • Reduce your monthly mortgage payment

  • Reduce the amount of interest paid over time

  • Potentially eliminate PMI

  • Improve certain loan pricing

  • Provide additional equity from day one

But that doesn’t mean you should drain your savings simply to reach 20%.

Maintaining adequate reserves after closing is important. A homeowner who puts every available dollar into the property may have a lower mortgage payment but very little financial flexibility when an unexpected expense comes up.

Borrowers with more complicated income or asset structures may also have additional financing options. Our case study on structuring complex income for jumbo financing provides an example of how financing can be structured around a borrower’s broader financial picture.

So, Should You Put 20% Down?

Maybe—but don’t do it simply because you think you’re supposed to.

A larger down payment can lower your payment and potentially eliminate mortgage insurance.

A smaller down payment can preserve cash, maintain emergency reserves, and give you more flexibility after closing.

The better choice depends on your:

  • Available cash

  • Monthly budget

  • Credit profile

  • Loan program

  • Mortgage insurance cost

  • Financial goals

  • Plans for the property

At David Ross Loans, I prefer to compare different down-payment options side by side so you can see how each one affects your monthly payment, cash to close, and overall financing.

You can also use our mortgage amortization calculator to compare different loan amounts and payment scenarios.

The goal isn’t necessarily to put the most money down. It’s to choose the down payment that makes the most sense for your overall financial picture.