Down Payment Options: 3.5% to 20% Explained
FHA, conventional, VA, and USDA loans compared — plus the trade-offs at each down payment level.
The 20% down payment isn't a requirement — it's a threshold that eliminates private mortgage insurance. Multiple loan programs allow 0-5% down, each with their own trade-offs in rate, insurance cost, and long-term expense.
The major options
Conventional (3-20% down): standard loan, PMI required below 20%, drops off automatically at 78% LTV. Best rates for borrowers with strong credit.
FHA (3.5% down): more lenient credit requirements (580+ FICO), mortgage insurance premium for life of loan. Best for first-time buyers with limited down payment or credit history.
VA (0% down): available to veterans and active military. No mortgage insurance ever. Funding fee (2.15-3.3%) can be rolled into loan. Best deal available if eligible.
USDA (0% down): for rural and some suburban areas. Income limits apply. Mortgage insurance required.
How down payment affects monthly cost
On a $400k home: 5% down means $20k cash but adds roughly $200/month in PMI for years 1-7. 20% down means $80k cash and zero PMI.
The PMI premium can be worth paying if you'd otherwise wait years to save the larger down payment — particularly in markets where home prices are appreciating faster than you can save.