Mortgage Myth: You Need a 20% Down Payment to Buy a Home

Since the mortgage meltdown of 2008, the popular wisdom has been that banks won’t give you a mortgage without a 20% down payment. To a great extent, that perception has become a reality, with nearly 40% of non-homeowners believing they need to put at least 20% down to buy a home. Another 26% think they have to put down between 15 and 20%.

However, according to the National Association of Realtors, hardly anyone puts 20% down on a house these days. The average down payment in 2024 was just 14%, and new home buyers averaged just 6%. In 2024, 16% of buyers under age 35 put zero down on home purchases.

Is a Small Down Payment Right for You?

Whether you should make a 20% down payment or pay as little down as possible is an entirely different issue. The size of your down payment should be based on your particular situation, including your financial circumstances, your housing budget, the home’s value, and the local housing market. All these factors should be carefully considered before making such a big financial commitment.

Start with Your Bank

If you have excellent credit, a low debt-to-income ratio, and steady employment, many lenders will work with a lower down payment. However, if your credit is less than perfect and you can’t meet the requirements of a conventional loan, several options still offer the opportunity to make a low or even zero down payment.

USDA Home Loan

If you plan on buying in or around a rural area, you could qualify for a USDA home loan, which offers zero-down loan options. There are income limitations (you can’t earn too much), and the credit requirements are lenient.

VA Home Loan

Veterans with at least two years of service or active duty members with 90 days of service can qualify for 100% financing. VA loans offer competitive rates and low closing costs. A credit score between 620 and 640 will be eligible for a VA loan with most lenders.

FHA Home Loan

If you can qualify for an FHA loan backed by the Federal Housing Administration, your down payment can be as low as 3.5%. Borrowers must have a minimum credit score of 580, steady employment, and a debt-to-income ratio that meets the lender’s requirements.

Freddie Mae and Freddie Mac

These government-sponsored agencies target low to middle income first-time buyers with a 3% down payment program. Borrowers with FICO scores as low as 630 are getting approved.

If you want to buy a home, don’t let the 20% down payment requirement dissuade you. Your bank has several options that can put you in a home within your budget—just be aware that the lower your down payment, the higher your monthly mortgage payment. From a long-term financial planning perspective, the larger the down payment you can make the better.