Own Luxury Homes®
First-Time Buyer Down Payment Options: 0% to 20%
Minimums: conventional 3%, FHA 3.5% (580+ credit), VA/USDA 0%. Median first-time buyer: 10% (NAR 2025). PMI: $67–$167/mo on $400K; cancels at 78% LTV on conventional (~yr 5). FHA MIP lasts life of loan if <10% down. Waiting to save 20% usually costs more than PMI. Own Luxury Homes® 12-Point Agent Integrity Audit™ — specialists who explain the real PMI math.
Down Payment Options for First-Time Buyers: From 0% to 20% (and the PMI Math)
The 20% down payment is a myth that delays homeownership for millions of buyers. The median first-time buyer put down 10% in 2025 — and nearly half put down less than 6%. The question is not whether you need 20% (you don’t) but which down payment amount actually serves your financial situation. This requires understanding PMI, loan type tradeoffs, and the actual cost of waiting to save more.
Down Payment Requirements by Loan Type
| Loan Type | Minimum Down | Credit Score Min | Mortgage Insurance | Who It’s Best For | |||||
|---|---|---|---|---|---|---|---|---|---|
| Conventional (HomeReady/Home Possible) | 3% | 620 (680+ for best rates) | PMI until 80% LTV; cancels automatically at 78% | First-time buyers with decent credit; income ≤ area median income | |||||
| Conventional (standard) | 5% | 620 | PMI until 80% LTV; cancels automatically | Buyers with stronger profiles who want fewer restrictions | |||||
| FHA | 3.5% (580+ credit); 10% (500–579) | 500 minimum | MIP for life of loan if <10% down; 11yr if ≥10% | Lower credit scores; gift-funded down payments; higher DTI | |||||
| VA | 0% | No official minimum; ~620 typical | None — no mortgage insurance ever | Eligible veterans, active duty, surviving spouses | |||||
| USDA | 0% | ~640 typical | Annual guarantee fee (0.35%/yr); upfront (1%) | Eligible rural areas; income limits apply | |||||
| Conventional 20%+ | 20% | 620 | None | Buyers with large savings who want to eliminate PMI from day one | |||||
| Conforming loan limit 2026: $806,500 (most areas). Higher-cost area limits: up to $1,209,750. Jumbo loans (above conforming limit) typically require 10–20% down. | |||||||||
The PMI Math: Is It Worth Putting Down Less?
Private mortgage insurance (PMI) is the cost lenders charge when your down payment is below 20% on a conventional loan. It protects the lender if you default — you pay it, but you don’t benefit from it. The question most buyers ask: "Should I wait to save 20% to avoid PMI?" The answer depends on how long you’d have to wait and what prices do while you’re waiting.
| Scenario | Monthly PMI Cost | Annual PMI | PMI Paid Before 78% LTV (est.) | When PMI Cancels (est.) | |||||
|---|---|---|---|---|---|---|---|---|---|
| $400K home, 5% down ($20K) | ~$167/mo (0.5% annual) | ~$2,000 | ~$8,000–10,000 over 4–5yr | ~Year 5–6 at 2% appreciation | |||||
| $400K home, 10% down ($40K) | ~$117/mo (0.35% annual) | ~$1,400 | ~$4,200–5,600 over 3yr | ~Year 3–4 at 2% appreciation | |||||
| $400K home, 15% down ($60K) | ~$67/mo (0.2% annual) | ~$800 | ~$800–1,600 over 1–2yr | ~Year 1–2 at 2% appreciation | |||||
| $400K home, 20% down ($80K) | $0 | $0 | $0 | Never needed | |||||
| PMI rates vary by lender, credit score, and loan-to-value. These are illustrative. PMI cancels automatically at 78% LTV; can be requested at 80% LTV. | |||||||||
The Waiting-to-Save-20% Calculation
Assume you have $20,000 saved (5% of $400K) and need to save $60,000 more to reach 20%. At $1,500/month savings, that takes 40 months (3+ years). During those 40 months: you paid $45,000–60,000 in rent (vs. building equity), the $400K home may have appreciated 6–12% ($24,000–48,000 more expensive), and rates may have moved. The PMI cost over those 5 years: roughly $8,000–10,000 (then it cancels). For most buyers in most markets, the cost of waiting to save 20% is far higher than the cost of PMI.
FHA vs Conventional at Low Down Payments: The Key Difference
FHA and conventional both allow low down payments, but their mortgage insurance works differently:
| Factor | Conventional with PMI | FHA with MIP |
|---|---|---|
| Insurance name | Private Mortgage Insurance (PMI) | Mortgage Insurance Premium (MIP) |
| When it cancels | Automatically at 78% LTV; requestable at 80% | Life of loan if <10% down; 11 years if ≥10% |
| Monthly cost (est. $400K) | ~$67–$167/month | ~$155/month (0.55% annual on most loans) |
| Upfront cost | None | 1.75% of loan amount ($6,650 on $380K) — financed into loan typically |
| Long-term cost if you hold 30yr | Cancels; low long-term cost | Much higher long-term cost if you keep the loan |
| Best when | Credit 680+; plan to stay 5+ years; want PMI to cancel | Credit 580–679; higher DTI; gift-funded down payment |
“The conversation I have most often with first-time buyers is about PMI. They’ve been told PMI is bad and they should avoid it. My counter: PMI is temporary and affordable compared to the cost of waiting. A buyer with $20,000 saved who waits 3 years to save $80,000 while renting at $2,500/month and watching the home they wanted go from $400K to $430K paid far more than PMI would have cost. PMI is not a penalty for being unprepared. It is the cost of accessing homeownership before you’ve saved 20%. For most buyers in most markets, it’s worth paying.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
Do first-time buyers have to put 20% down?
No. The median first-time buyer put down 10% in 2025. Conventional loans require 3–5% down; FHA requires 3.5% (with 580+ credit); VA and USDA allow 0% for eligible buyers. PMI applies below 20% on conventional loans but cancels automatically at 78% LTV.
What is PMI and how long do I pay it?
Private mortgage insurance protects the lender if you default; you pay it but don’t benefit. On a conventional loan: PMI cancels automatically when your loan balance reaches 78% of the original value, or you can request cancellation at 80% LTV. Typically 3–7 years at 2% annual appreciation with 5% down. Cost: roughly $67–$167/month on a $400K loan depending on credit score and LTV.
Is it better to put 10% or 20% down?
Depends on your savings, timeline, and local market. 10% down: lower upfront cash, PMI for 3–6 years, can buy sooner. 20% down: no PMI, better rate, but 2–3+ more years to save in most markets. For most first-time buyers, buying sooner with PMI produces better long-term outcomes than waiting and renting while prices and rents rise.
Can I use gift money for a down payment?
Yes, on most loan types. Conventional: gift funds allowed; requires a gift letter documenting the money is not a loan. FHA: 100% gift-funded down payment allowed. VA and USDA: gift funds allowed. The gift cannot be from a seller, builder, or anyone with a financial interest in the transaction.
Own Luxury Homes® — audited first-time buyer specialists who explain the PMI math before you delay your purchase unnecessarily. 12-Point Agent Integrity Audit™. Find your first-time buyer specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)