How Much Down Payment Do You Really Need?

Updated October 2026 · By Jet Ameti, NMLS #757627

If I had a dollar for every renter who told me “I’m saving up 20%,” I could fund their down payments myself. The 20% figure is the most persistent myth in homebuying — and for many buyers, chasing it costs more than it saves.

Where the 20% myth comes from

Twenty percent is the down payment that avoids mortgage insurance on a conventional loan — that’s all it is. It was never a requirement. Somewhere along the way, “avoids PMI” mutated into “required to buy,” and generations of buyers have delayed homeownership saving toward a target nobody actually demanded.

What low-down-payment options actually look like

Without quoting program minimums as sales figures, here’s the honest landscape:

• Conventional loans offer low-single-digit down payment options for qualified buyers — you’ll pay PMI until you reach enough equity, but you’re in the home years earlier. See conventional programs.
• FHA loans are built for lower down payments with more flexible credit requirements, in exchange for their own mortgage insurance system (upfront + monthly). See FHA programs and FHA vs. conventional.
• VA loans for eligible veterans and service members require no down payment and no monthly mortgage insurance — arguably the best deal in American housing finance. See the VA guide.
• Down payment assistance — Illinois buyers should know about IHDA programs that can help with down payment and closing costs. See down payment assistance.

The honest trade-offs of putting less down

I’m not going to pretend small down payments are free. Here’s what you give up:

• A bigger loan and higher payment. Less down means more borrowed — every dollar you don’t put down is a dollar you pay interest on.
• Mortgage insurance. Conventional PMI or FHA MIP adds a monthly cost until you earn your way out of it. (How that exit works: PMI vs. MIP explained.)
• Thinner equity cushion. With little equity, a flat or dipping market can leave you owing more than the home’s worth — which matters if you need to sell or refinance.
• Slightly worse pricing. Higher loan-to-value ratios generally carry modest pricing adjustments.

The cost of waiting

Now the other side, which the 20%-or-bust crowd never mentions. While you spend three more years saving:

• You pay three more years of rent — building someone else’s equity.
• Home prices may rise faster than you save, moving the target.
• You miss years of principal paydown and potential appreciation.
• Rates may move against you — or in your favor. Nobody knows.

For many buyers, buying sooner with a smaller down payment and dropping PMI later beats waiting years for 20%. For others — especially with thin reserves — waiting is the responsible call. The answer depends on your numbers, not a slogan.

Gift funds and assistance: legitimate shortcuts

Your down payment doesn’t have to come entirely from your own savings. Most programs allow gift funds from family members — with a signed gift letter stating the money isn’t a loan, plus a paper trail of the transfer. And Illinois buyers should look at down payment assistance programs (IHDA and local programs), which can cover part of your down payment or closing costs, sometimes as forgivable loans. These programs have income limits and requirements, but for eligible buyers they can turn an impossible down payment into a manageable one. Details: down payment assistance.

What I tell my own buyers

Put down what lets you buy safely: enough that your payment fits comfortably, you keep a real emergency fund after closing, and you’re not one furnace replacement from crisis. For some people that’s a low-single-digit down payment with reserves intact. For others it’s more. The right number is personal — run it with honest affordability math, and let me stress-test it with you before you decide.