Minimum Down Payments by Loan Type
| Loan Type | Minimum Down Payment | Credit Score Required | PMI / Insurance |
|---|---|---|---|
| VA Loan | 0% | No official min (lenders vary) | Funding fee only — no PMI |
| USDA Loan | 0% | 640+ (most lenders) | Guarantee fee — no PMI |
| Conventional (Fannie/Freddie) | 3% | 620+ (best rates 740+) | PMI if below 20% |
| FHA Loan | 3.5% (580+ score) | 580 minimum | MIP for life of loan (<10% down) |
| FHA Loan (lower score) | 10% (500–579 score) | 500 minimum | MIP for 11 years |
| Conventional (no PMI) | 20% | 620+ | None |
Source: HUD.gov, VA.gov, USDA Rural Development, Fannie Mae guidelines. Individual lender requirements may be stricter.
How PMI Works — and When It Ends
Private mortgage insurance (PMI) is required on conventional loans when your down payment is below 20%. It protects the lender — not you — against default. You pay for it, but it provides you no direct benefit beyond making the loan possible with a smaller down payment.
PMI typically costs 0.5–1.5% of the loan amount per year, charged monthly. On a $350,000 loan at 1%, that's $3,500/year — about $292/month added to your payment.
The good news: PMI on conventional loans is removable. Under the Homeowners Protection Act, lenders must automatically cancel PMI when you reach 22% equity (78% LTV) based on the original amortisation schedule. You can also request cancellation at 20% equity (80% LTV) — you may need to pay for a new appraisal to confirm the current value.
On FHA loans, the equivalent is mortgage insurance premium (MIP), which works differently. If you put less than 10% down on an FHA loan, MIP lasts the entire loan term. This is a significant long-term cost difference versus conventional PMI, which ends at 20% equity.
How Down Payment Size Affects Your Costs
| Down Payment | Loan Amount | Monthly P&I (6.8%) | Monthly PMI (~0.8%) | Total Monthly |
|---|---|---|---|---|
| 3% ($12,000) | $388,000 | $2,540 | ~$259 | ~$2,799 |
| 5% ($20,000) | $380,000 | $2,488 | ~$253 | ~$2,741 |
| 10% ($40,000) | $360,000 | $2,354 | ~$240 | ~$2,594 |
| 20% ($80,000) | $320,000 | $2,093 | None | ~$2,093 |
Based on $400,000 home, 30-year fixed at 6.8%, PMI at 0.8%. Excludes taxes and insurance. Illustrative only.
The difference between 3% down and 20% down is roughly $706/month in this example — or about $8,470 per year. Over the time it takes to reach 20% equity and eliminate PMI from the 3% scenario, the total additional cost is significant. Whether waiting to save a larger down payment is worth it depends on how long saving would take and whether the housing market moves in the meantime.
How to Decide Your Right Number
There's no universally correct answer — the right down payment depends on your individual situation. Consider:
Don't drain your reserves. After your down payment and closing costs (typically 2–5% of the purchase price), you should have at least 3–6 months of living expenses remaining. Buying a home with no financial cushion is risky — homes require unexpected repairs, and job loss happens.
Compare the PMI cost to investment opportunity cost. If you're choosing between 10% down (PMI) and 20% down (no PMI), the extra $40,000 saved for the larger down payment could alternatively stay invested. At historical market returns, that $40,000 may grow faster in the market than the PMI savings accrue — though this involves market risk that PMI savings don't.
In competitive markets, a larger down payment can win offers. Sellers prefer buyers with more skin in the game. A 20% down offer signals financial stability and a lower chance of financing falling through — it can be the deciding factor in multiple-offer situations.
Consider how long you'll stay. If you plan to sell in 3–5 years, a smaller down payment preserves cash that can be deployed elsewhere. If you're buying your forever home, the long-term interest savings from a larger down payment become more valuable.
Down Payment Assistance Programs
Many first-time buyers don't realise how much help is available. Down payment assistance (DPA) programs provide grants or low/zero-interest loans to cover part or all of the down payment and sometimes closing costs.
Programs are offered by state housing finance agencies, local governments, and nonprofits — and most have income limits, purchase price limits, and primary residence requirements. The CFPB and HUD maintain lists of approved housing counsellors who can identify programs available in your area — start at consumerfinance.gov and hud.gov.
Some employer-sponsored programs also provide homebuying assistance. Check with your HR department — this benefit is more common in healthcare, education, and government sectors.
Down Payments in the UK, India, and Canada
UK: UK lenders typically require a minimum 5% deposit (down payment), with the best mortgage rates reserved for those with 25–40% deposits. A 10% deposit is the practical threshold where rates begin improving meaningfully. The UK government's Mortgage Guarantee Scheme (similar in concept to FHA) backs 95% LTV mortgages. First-time buyers also benefit from the Lifetime ISA — up to £4,000/year with a 25% government bonus specifically for first home purchase. MoneyHelper has a savings calculator at moneyhelper.org.uk.
India: Indian banks typically finance up to 80–90% of a property's value, requiring a 10–20% down payment. For properties above ₹75 lakh, the maximum LTV is 75%, requiring a 25% down payment. Unlike the US, there's no PMI equivalent — but some banks charge a higher rate for higher LTV loans. PMAY (Pradhan Mantri Awas Yojana) provides interest subsidies that effectively reduce the cash needed for first-time buyers in certain income brackets. The NHB maintains housing finance guidelines at nhb.org.in.
Canada: Canada requires a minimum 5% down payment on homes up to $500,000 and 10% on the portion between $500,000 and $999,999. Homes $1 million and above require 20% (no insured mortgage available). CMHC mortgage insurance is mandatory for down payments below 20%. The First Home Savings Account (FHSA), introduced in 2023, allows first-time buyers to contribute up to $8,000/year (lifetime maximum $40,000) with tax-deductible contributions and tax-free withdrawals for a qualifying home purchase. Details at cmhc-schl.gc.ca.