How Much Do You Actually Need for a Down Payment?

Here’s the short answer on down payment options: you probably don’t need 20% down. Conventional loans go as low as 3% down, FHA loans start at 3.5%, and VA and USDA loans can get you to the closing table with 0% down if you qualify. The “20% or don’t bother” advice your uncle gave you is decades out of date. What actually matters is matching the right loan program to your situation — your credit, your savings, and how you feel about mortgage insurance. Let’s break down the real numbers and your down payment options, using actual home prices you’d see in Phoenix, Sacramento, Denver, and Omaha.

The 20% Myth, Debunked

I still get clients in my Scottsdale office who’ve been saving for five years because they think 20% down is a requirement. It’s not — it never has been for most loan types. The 20% number matters for one thing: avoiding private mortgage insurance (PMI) on a conventional loan. That’s it. It’s not a qualification threshold, and it’s not a sign of a “real” homebuyer versus someone who isn’t ready.

In my experience, waiting to save an extra $40,000-$60,000 while home prices and rates move around you often costs more than just buying sooner with a smaller down payment and dealing with PMI for a few years. Not always — I’ll get to the trade-off below — but often enough that it’s worth running the actual numbers before you commit to years of extra saving.

Conventional Loans: 3% Down

Fannie Mae and Freddie Mac both back conventional loan programs that allow as little as 3% down for qualified first-time buyers (and some repeat buyers, depending on the program). Say you’re buying a $400,000 home in Aurora, Colorado — a pretty typical price point for a starter home along the Front Range right now. Three percent down is $12,000. Compare that to the old-school 20% number: $80,000. That’s the gap that keeps a lot of good buyers renting longer than they need to.

Conventional 3% down loans do require decent credit — generally you’ll want a credit score in the high 600s or better to get competitive terms — and you’ll pay PMI until you build enough equity. But for a lot of my clients in Sacramento and Denver, it’s the fastest realistic path to a first home.

FHA Loans: 3.5% Down

FHA loans are backed by the federal government and tend to be more forgiving on credit history than conventional loans. The down payment minimum is 3.5%, provided your credit score meets the FHA’s threshold (usually 580 or above for the 3.5% minimum). On that same $400,000 home, 3.5% down comes to $14,000.

FHA is a solid option if your credit has a few dings — a past medical collection, a thin credit file, whatever the story is. The trade-off is that FHA loans carry their own mortgage insurance premium (MIP), and unlike conventional PMI, it often sticks around for the life of the loan unless you refinance out of it later. I walk clients through this trade-off constantly, because FHA isn’t automatically “better” just because the down payment is a hair lower than some conventional options — it depends on your credit profile and long-term plans.

VA and USDA: 0% Down

If you’re an eligible veteran, active-duty service member, or qualifying surviving spouse, a VA home loan can get you into a home with no down payment at all, and there’s no monthly PMI — just a one-time funding fee that can often be rolled into the loan. I’ve closed VA loans for buyers in Colorado Springs and around Luke Air Force Base outside Phoenix, and it’s a substantial benefit for those who have earned it.

USDA loans are the other 0%-down option, but they’re geography-dependent — they’re meant for eligible rural and some suburban areas, not downtown Denver or central Phoenix. Parts of rural Nebraska and outlying areas of Arizona and Colorado often qualify. There are household income limits too, so it’s worth checking eligibility for the specific property before you fall in love with it.

The PMI Trade-Off, Honestly

Private mortgage insurance protects the lender, not you, if you default. It’s an extra monthly cost added to your payment when you put down less than 20% on a conventional loan. Here’s how I talk clients through it:

• PMI isn’t forever on conventional loans. Once you hit roughly 20% equity — through paydown, appreciation, or both — you can typically request cancellation.
• PMI cost varies with credit and loan-to-value. Better credit generally means lower PMI cost, which is another reason to work on your credit score before you apply.
• PMI isn’t automatically a dealbreaker. If a smaller down payment gets you into a home two years sooner in a market like Phoenix or Sacramento where prices have historically trended up, the PMI cost can be worth it. If you’re on the fence or your income is tight, it might make sense to wait and save more first.

This is exactly the kind of decision where the math matters more than the rule of thumb. I always tell people to run the numbers on a few different down payment scenarios — 3%, 5%, 10%, 20% — before deciding. Seeing the actual monthly payment difference, including estimated PMI, usually makes the decision a lot clearer than any generic advice.

Putting It Together: Comparing Your Down Payment Options

Let’s say you’re eyeing a $350,000 home in Omaha. Here’s roughly how the down payment options stack up:

• Conventional (3% down): $10,500 down, PMI applies, credit score matters a lot
• FHA (3.5% down): $12,250 down, more flexible credit, MIP applies
• VA (0% down, if eligible): $0 down, funding fee instead of monthly PMI
• USDA (0% down, if property/income qualify): $0 down, guarantee fee instead of PMI
• Conventional (20% down): $70,000 down, no PMI, lowest monthly payment of the group

None of these is universally “right.” The right one is the one that fits your credit, your timeline, and how much cash you actually want to put into a house versus keep in reserve for repairs, moving costs, or life in general.

FAQ

Do I really need 20% down, or are there other down payment options?

No. Conventional loans allow as little as 3% down, FHA allows 3.5%, and VA and USDA loans can go to 0% down for eligible borrowers. Twenty percent down simply avoids PMI — it’s not a requirement to get approved.

What credit score do I need for a low down payment loan?

It varies by program. FHA loans can work with scores as low as 580 for the 3.5% minimum, while conventional low-down-payment programs generally want scores in the high 600s or better for the most favorable terms. All financing is subject to credit approval.

Is it better to put more down to avoid PMI?

Sometimes, but not always. It depends on how much cash you’d have left over, how the local market is trending, and whether the PMI cost is manageable relative to buying sooner. I’d rather see a client keep a healthy reserve fund and pay PMI for a while than drain savings to hit 20% down. Talk it through with a loan officer, or get pre-approved to see real numbers for your situation.

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This article is general education, not financial advice or a commitment to lend. Loan programs, terms, and availability are subject to credit approval and may change. Loanatik LLC is an Equal Housing Lender. See our licensing & disclosures.