Conventional loans typically require a down payment between 3% and 20% of the home's purchase price, though the exact amount depends on your credit score, debt level, and the lender's requirements.

A conventional loan is a mortgage not backed by a government agency like the FHA or VA. Because the lender carries more risk, they set their own rules about how much money you must put down upfront. The lower your down payment, the higher your interest rate and the more you'll pay in private mortgage insurance (PMI) — a monthly fee that protects the lender if you stop paying.

The relationship between down payment size and your total cost is direct: put down 20% and you avoid PMI entirely. Put down 5% and you'll pay PMI for years, sometimes until you've paid off half the loan. Understanding this trade-off helps you decide whether to save longer for a bigger down payment or buy sooner with a smaller one.

Key Takeaways

  • Conventional loans require 3% to 20% down, with 20% eliminating PMI payments entirely.
  • Down payments below 20% trigger PMI, which costs 0.5% to 2% of your loan amount annually and stays on your loan until you reach 20% equity.
  • Your credit score and debt-to-income ratio affect both the minimum down payment a lender will accept and the interest rate you receive.
  • Putting down less than 20% can let you buy sooner, but you'll pay thousands more in PMI over the life of the loan.
  • You can remove PMI once you've paid the loan down to 80% of the home's original purchase price, though this typically takes 5 to 10 years.

Down Payment Minimums and What Triggers PMI

Most conventional lenders will accept 3% down, though some require 5% or more. The percentage is calculated on the purchase price, not the appraised value. On a $300,000 home, 3% equals $9,000; 5% equals $15,000; 20% equals $60,000.

Any down payment below 20% triggers PMI. The cost varies by lender and loan type but typically runs between 0.5% and 2% of your loan amount per year. On a $291,000 loan (after a 3% down payment on that $300,000 home), PMI might cost $1,455 to $5,820 annually, added to your monthly mortgage payment. That PMI stays on your loan until you've paid it down to 80% of the home's original purchase price — meaning you've built up 20% equity.

The math matters: a 5% down payment costs more upfront but may save you money on PMI compared to 3% down, depending on your lender's pricing. Ask for a loan estimate that shows the exact PMI cost before you commit.

How Credit Score and Debt Affect Your Down Payment Options

Your credit score determines whether a lender will accept 3% down or requires 5%, 10%, or more. Borrowers with scores above 740 typically may have access to for the lowest minimums and best rates. Scores between 680 and 740 may face 5% minimums. Scores below 680 often require 10% to 15% down, and some lenders won't work with you at all below 620.

Your debt-to-income ratio (DTI) — the percentage of your gross monthly income that goes to debt payments — also matters. Most lenders cap this at 43% to 50%. If you're already paying $1,500 a month on car loans, student loans, and credit cards, and you earn $4,000 a month, your DTI is 37.5%. A new mortgage payment of $1,200 would push you to 67.5%, over the limit. In this case, you might need to pay down other debts or save a larger down payment to lower the loan amount and keep the payment manageable.

Before you start house hunting, check your credit report for errors and pay down high-balance credit cards. Even a 50-point improvement in your score can lower your interest rate and open up the 3% down option.

The Real Cost of Putting Down Less Than 20%

Saving an extra $20,000 to reach 20% down takes time. But the cost of PMI over that time can be substantial. On a $300,000 home with 5% down ($15,000), you'd borrow $285,000. At 1% PMI annually, that's $2,850 per year, or about $237 per month. Over 10 years (the typical time to reach 20% equity through payments), you'd pay roughly $28,500 in PMI alone.

However, waiting two more years to save that extra $20,000 means two more years of rent, which might cost $24,000 to $36,000 depending on your market. You also miss out on building equity in a home and locking in a mortgage rate. The right choice depends on your local rent versus buy costs, your confidence in your income, and how soon you want to stop paying rent.

Some buyers use a piggyback loan — a second mortgage for 10% or 15% of the purchase price — to avoid PMI while putting down only 5% to 10% on the first mortgage. This strategy has fallen out of favor since the 2008 financial crisis, but it still exists. Ask your lender whether it makes sense for your situation.

Saving for Your Down Payment

Down payment money must come from your own savings, a gift from a family member, or a grant program. Lenders require documentation showing where the money came from. Borrowed money — even from family — typically doesn't count, because it increases your debt and your DTI ratio.

Some states and nonprofits offer down payment assistance grants or forgivable loans for first-time homebuyers or buyers in certain income ranges. These programs vary widely by location. Your real estate agent or local housing authority can point you toward programs in your area, though you'll need to research the specific rules and deadlines.

If you're buying with a spouse or partner, both of your incomes and debts count toward the DTI calculation. Sometimes it makes sense for one person to be on the mortgage and one to be on the deed, or vice versa, but this has tax and legal consequences. Talk to a tax professional or real estate attorney before you structure it this way.

When to Request PMI Removal

Once you've paid your loan balance down to 80% of the home's original purchase price, you can request PMI removal. If you bought for $300,000 and put down 5%, your original loan was $285,000. At 80% of the purchase price, that's $240,000. When your balance hits $240,000, you can ask your lender to drop PMI.

Some lenders will remove PMI automatically once you reach this point; others require you to request it in writing. A few require an appraisal to confirm the home hasn't lost value. Check your loan documents or call your lender to understand their specific rules.

Reaching 80% equity typically takes 5 to 10 years of regular payments, depending on your interest rate and loan term. Paying extra principal each month speeds this up. Even an extra $50 or $100 per month can shave years off the PMI period and save thousands in interest.

Down Payment Assistance and First-Time Buyer Programs

Many states, counties, and nonprofits offer down payment help for first-time homebuyers or buyers with lower incomes. These programs take different forms: some are grants (money you don't repay), some are forgivable loans (you repay only if you sell within a certain time), and some are low-interest loans you repay like a second mortgage.

may be able to access usually depends on your income, credit score, and whether you've owned a home in the past three years. Some programs are tied to specific neighborhoods or property types. Your lender can tell you which programs they work with, or you can contact your state housing finance agency or local housing authority to ask what's available.

These programs often have long waitlists or limited funding, so start asking early. Even if you don't may have access to now, knowing what exists helps you plan your timeline and savings strategy.

Frequently Asked Questions

Can I use a gift from family for my down payment?

Yes. Most lenders accept down payment gifts from family members, but they require a signed letter from the gift-giver stating the money is a gift, not a loan, and that they expect no repayment. The gift must clear your bank account before closing, so plan ahead if you're receiving it from out of state.

What happens if the home appraises for less than the purchase price?

If the appraisal comes in low, your down payment percentage changes. On a $300,000 purchase with a $15,000 down payment (5%), if the home appraises at $280,000, your down payment is now 5.4% of the appraised value. You may need to put down more cash or renegotiate the price. Your lender will tell you what's required.

Is it better to put down 3% or 5%?

It depends on your lender's PMI pricing and your financial situation. A 5% down payment means a smaller loan and lower PMI costs, but requires more cash upfront. A 3% down payment lets you buy sooner with less savings. Ask your lender for a loan estimate showing the total cost of each option over 10 years, including PMI.

Can I remove PMI before I reach 20% equity?

No. PMI stays on your loan until you've paid it down to 80% of the original purchase price. Some lenders allow you to refinance into a new loan without PMI once your home has appreciated enough, but refinancing costs money and resets your loan term, so it's not always worth it.

What if I don't have enough for a 3% down payment?

Some FHA loans require only 3.5% down and accept lower credit scores, though they charge mortgage insurance for the life of the loan. VA loans (for military members and veterans) often require zero down. USDA loans in rural areas also offer zero-down options. Your lender can explain which programs you might may have access to for based on your situation.