Do you really need 20 percent down to buy a house?

The twenty percent figure is not a requirement and never was a universal one. Conventional loans backed by Fannie Mae and Freddie Mac accept as little as three percent down for qualifying buyers. FHA loans require three and a half percent with more flexible credit standards. VA loans for eligible service members and veterans and USDA loans in eligible rural areas can require nothing down. Median down payments for first-time buyers have run well below twenty percent for decades, so the buyers waiting to reach it are frequently waiting for a threshold their peers never met.

What twenty percent actually buys is the avoidance of private mortgage insurance, which protects the lender against default and typically costs somewhere between roughly a half and one and a half percent of the loan annually. On conventional loans PMI is cancellable: you can request removal at eighty percent loan-to-value based on the original value, and it terminates automatically at seventy-eight percent. FHA mortgage insurance behaves differently and, for most current loans with low down payments, lasts the life of the loan unless you refinance out of it, which is a meaningful long-term cost difference that gets overlooked when comparing programs on down payment alone.

The real decision is not the percentage but what the cash is for. Emptying your savings to reach twenty percent and closing with no reserves is worse than putting ten percent down and keeping an emergency fund, because a new house generates unexpected expenses immediately and a homeowner with no cash is one water heater from credit card debt. Weigh the guaranteed cost of PMI against the cost of delaying purchase in a rising market, and against the opportunity cost of the capital. Also investigate down payment assistance programs, which exist in most states and many municipalities, frequently extend to buyers well above what people assume the income limits are, and are widely underused.