Feb 4, 2026
What Happens When You Put Less Than 20% Down?
Putting less than 20% down isn't a dealbreaker — but it does change your costs significantly. Here's exactly what to expect: PMI, equity, loan options, and how to plan around it.
The 20% down payment has a near-mythic status in homebuying. Ask almost anyone and they'll tell you that's the number you're supposed to hit. But in a housing market where the median home price in many major cities exceeds $600,000, putting 20% down isn't just challenging — for millions of first-time buyers, it's genuinely out of reach without years of additional saving.
The good news: putting less than 20% down is a completely viable path to homeownership. The important thing is going in with clear eyes about what it costs you, how it affects your loan, and when it makes sense versus when it doesn't.
What Actually Changes Below 20%
When your down payment falls below 20%, three things shift simultaneously:
Your loan amount increases — you're borrowing more
You'll almost certainly pay PMI — Private Mortgage Insurance
Your equity cushion at closing is thinner — which matters if home values drop or you need to sell quickly
Let's look at each.
Reality check with our mortgage calculator.
Private Mortgage Insurance (PMI): The Real Cost
PMI is insurance that protects your lender — not you — in case you default. You pay for it, but it benefits the bank. It's the fee lenders charge to compensate for the added risk of a smaller down payment.
How much does PMI cost?
Typically 0.5% to 1.5% of the loan amount per year, paid monthly. The exact rate depends on your credit score, loan size, and the lender.
Here's what that looks like on a $500,000 home at various down payment levels (at today's 30-year rate of 6.0%):
Down Payment | Loan Amount | Monthly P&I | Est. Monthly PMI | Total P&I + PMI |
|---|---|---|---|---|
3% ($15K) | $485,000 | $2,908 | ~$485 | ~$3,393 |
5% ($25K) | $475,000 | $2,848 | ~$396 | ~$3,244 |
10% ($50K) | $450,000 | $2,698 | ~$262 | ~$2,960 |
15% ($75K) | $425,000 | $2,548 | ~$177 | ~$2,725 |
20% ($100K) | $400,000 | $2,398 | $0 | $2,398 |
The difference between 3% down and 20% down is nearly $1,000/month in this example. That's real money — and it's worth knowing before you commit.
PMI adds meaningful cost to your housing payment — and that money builds zero equity and provides you no direct benefit as the borrower.
The silver lining: PMI isn't permanent. Once your loan balance drops to 80% of your home's original appraised value, you can request cancellation. Federal law (the Homeowners Protection Act) requires automatic cancellation when your balance reaches 78% of the original value. If your home appreciates, you may be able to request a new appraisal and reach that threshold sooner.
Low Down Payment Loan Options
You have more choices than you might think:
Conventional Loans (3–5% Down)
Fannie Mae and Freddie Mac back conventional loans with down payments as low as 3% for first-time buyers (and 5% for repeat buyers). PMI is required but can be removed once you hit 20% equity.
FHA Loans (3.5% Down)
FHA loans are government-backed and allow down payments as low as 3.5% with a 580+ credit score. The important catch: FHA loans carry mortgage insurance premiums (MIP) — an upfront fee of 1.75% of the loan amount plus an ongoing annual premium. Unlike PMI on conventional loans, MIP on FHA loans often stays for the life of the loan if you put less than 10% down.
VA Loans (0% Down)
For eligible veterans, active-duty service members, and surviving spouses, VA loans allow 0% down with no PMI. This is one of the most powerful mortgage benefits available and is significantly underutilized by those who qualify.
USDA Loans (0% Down)
For buyers purchasing in eligible rural and suburban areas, USDA loans offer 0% down financing. Income limits apply and geographic restrictions exist, but the program is broader than many people assume.
State and Local Down Payment Assistance Programs
Many states, counties, and cities offer grants or low-interest second mortgages to help buyers cover the down payment. Programs vary widely by location and income, but for buyers who qualify, they can meaningfully bridge the gap.
Check out our Affordability Calculator to see what makes sense for your financial reality.
The Risk Side: What Happens If Values Drop
A smaller down payment means thinner equity at the start. If home values decline — as they did in 2008–2009 and in certain markets during 2022–2023 — a buyer who put 5% down can quickly find themselves underwater (owing more than the home is worth).
This matters primarily if:
You need to sell within a few years
You face unexpected financial hardship
You're in a volatile market where prices have run up sharply and a correction is possible
If you're planning to stay in the home long-term and can absorb payment fluctuations, the short-term equity gap matters much less.
When a Lower Down Payment Is the Right Call
When home prices are rising faster than you can save. If you're in an appreciating market and prices are climbing 3–5% annually, waiting two more years to hit 20% could cost you more than the PMI ever would.
When your savings are genuinely needed elsewhere. Depleting every dollar of savings to hit 20% and then having nothing left for an emergency fund or home repairs is a financially dangerous position. PMI may be the smarter cost to absorb.
When your income is strong and growing. If you're early in a well-compensating career, the income to pay off PMI and build equity quickly is coming — and buying sooner means building equity from a lower price basis.
When a 0%-down program is available. VA and USDA loans at 0% down with no PMI can genuinely be better deals than conventional loans with 20% down, depending on the terms.
When You Should Try to Hit 20%
When you're in a flat or declining market where appreciation isn't working in your favor
When your budget is already stretched and PMI would put you in an uncomfortable financial position
When you can realistically save the remainder within 12–18 months without sacrificing your emergency fund
When you're comparing an FHA loan — avoiding lifetime MIP is often worth the wait
The Bottom Line
The 20% rule isn't wrong — it's just not the whole story. A smaller down payment costs you more each month and more over the life of the loan. But it gets you into a home sooner, which has its own financial and lifestyle value.
The right answer depends on your market, your income trajectory, your savings cushion, and which loan programs you qualify for. Run the actual numbers — including PMI — before deciding whether to keep saving or move forward.
Knowing your real monthly cost at every down payment level is the only way to make an informed decision.
Use our Mortgage Calculator to model different down payment scenarios and see exactly how your monthly payment — and total loan cost — changes at 3%, 5%, 10%, and 20% down.
Sources
Freddie Mac Primary Mortgage Market Survey, Feb. 26, 2026: 30-yr avg 5.98% — freddiemac.com/pmms
Bankrate National Mortgage Rate Survey, Feb. 27, 2026: 30-yr avg 6.04% — bankrate.com/mortgages/mortgage-rates
Consumer Financial Protection Bureau, Private Mortgage Insurance overview — consumerfinance.gov
FHFA 2026 Conforming Loan Limit: $832,750 — fhfa.gov
All payment figures calculated using standard amortization formula; PMI estimates are illustrative ranges based on typical lender pricing