How Much Down Payment Do You Need? The Rules by Loan Type

The minimum down payment depends entirely on the loan programme, not on your income. VA-backed loans need 0% for eligible veterans, and the VA states that nearly 90% of VA-backed loans are made without one. FHA loans allow 3.5%. Conventional loans start at 3% through first-time buyer programmes. The number that matters most is 20%, because that is the threshold at which conventional lenders stop requiring private mortgage insurance.

The minimum you are allowed and the amount that saves you the most money are two different numbers.

The short answer: 0% to 20%

There is no single answer, because the down payment is set by the loan programme rather than by the borrower. The spread is wider than most buyers expect: from nothing at all to a fifth of the price. The Consumer Financial Protection Bureau describes the loan type as one of the three decisions that shape a mortgage, alongside term and rate type, precisely because it drives this number.

Program minimums by loan type

Two of those rows deserve attention. On VA loans, the Department of Veterans Affairs states plainly that "nearly 90% of all VA-backed home loans are made without a down payment" — this is not a niche programme but the normal case. On FHA loans, the CFPB notes that mortgage insurance is required on all FHA loans, with no equity threshold that removes it, which is why FHA becomes comparatively expensive for a borrower with good credit and a 10–15% down payment.

Also note the CFPB's description of the wider menu: conventional, government (FHA, VA, USDA), and special programmes — including state or local housing agency loans and special purpose credit programmes aimed at low- and middle-income borrowers in targeted communities. Those are frequently the source of a lower down payment requirement than a buyer assumes they can get.

Why 20% is the line

Twenty percent is not a rule about creditworthiness. It is the point at which the lender's risk falls enough that it stops charging you for insurance. On a conventional loan, a down payment below 20% typically triggers a private mortgage insurance requirement; at 20% it does not. The CFPB also notes that a 20% down payment may bring a lower interest rate.

So 20% buys two things at once: it removes the PMI premium from your monthly payment, and it may reduce the rate on the whole loan. Those compound across the full term, which is why the effective return on that marginal cash is often higher than buyers expect.

What PMI costs, and how it ends

Private mortgage insurance is arranged by the lender and provided by private insurers. The CFPB is direct about what it does: it "protects the lender — not you — if you stop making payments." If you fall behind, PMI does not save your home.

It is paid in one of three ways, and the choice is worth pricing:

• Monthly premium, added to your mortgage payment and shown in the Projected Payments section on page 1 of the Loan Estimate.
• Up-front premium, paid once at closing and shown in section B on page 2. If you later move or refinance, you may not get it back.
• Both, which some lenders offer at a lower monthly cost.

PMI is not permanent. Once you have built enough equity, it can be removed. Under the federal Homeowners Protection Act, a borrower may generally request cancellation once the loan balance reaches 80% of the home's original value, and the servicer must automatically terminate it at 78% — provided the loan is current. Reaching the threshold on the original value can be faster than waiting for the market to move, and paying down principal accelerates it. Our equity definition explains how the loan-to-value figure is calculated, and the extra payment calculator shows how much faster overpaying gets you there.

One alternative the CFPB flags: some lenders offer conventional loans with a small down payment and no PMI, in exchange for a higher interest rate. Whether that is cheaper depends on how long you keep the loan, so price both.

Worked example: 3% vs 20% on a $400,000 home

The 20% route costs $68,000 more cash today and saves $623 a month. Break-even is roughly 109 months, or about nine years — before counting any rate advantage, and assuming the PMI is not cancelled earlier. If you would cancel the PMI in three or four years by paying down principal or through appreciation, the 3% route looks considerably better. If you intend to keep the loan for decades, the 20% route wins.

This is a genuine trade-off, not a rule. Test your own version in the mortgage calculator and check the ratio the lender will actually measure in the DTI calculator.

Where the money can come from

Buyers routinely assume the down payment must be their own savings. It does not have to be, and the acceptable sources are broader than most people realise:

• Gift funds from a family member, which most programmes allow with a signed gift letter.
• Down payment assistance from state and local housing finance agencies, including the special programme category the CFPB describes.
• Employer assistance, offered by some larger employers and often overlooked.
• Retirement account withdrawals, which have real tax and long-term consequences and should be a last resort rather than a plan.

Whatever the source, it must be documented and traceable. Sudden unexplained deposits are the most common reason a loan stalls late in underwriting.