Should You Put Down 20% on a Home? Consider the Pros and Cons

Quick Answer

Putting down 20% on a home purchase can reduce your monthly payment, eliminate private mortgage insurance and possibly give you a lower interest rate. However, it can take a long time for first-time homebuyers to achieve this goal, and it may not be as beneficial during periods of low interest rates, particularly if you have to drain your savings.

Couple looking on bank statements.

It's not required to make a 20% down payment when buying a house, but there can be some financial benefits if you do. At the same time, putting down that much money could also come with some potential drawbacks.

As a result, it's important to think carefully about your situation and your objectives to make the best decision for you.

Do You Have to Put 20% Down on a House?

While a 20% down payment has long been recommended, it's not a requirement. Depending on the type of loan you have, the minimum required may range from 0% to 10%:

Loan Type Minimum Down Payment Required or Recommended
Conventional loan 3% to 15%
FHA loan 3.5% to 10%
VA loan 0%
USDA loan 0%
Jumbo loan 10%

Pros and Cons of a 20% Down Payment

As you decide how much to put down on your new home, it's important to think about how your down payment will impact your financial situation, both now and in the future. Here are some advantages and disadvantages to consider with a 20% down payment.

Benefits of a 20% Down Payment

  • Reduces your monthly payment: The more money you put down, the less you have to borrow, which means that you'll end up with a lower monthly payment. This can be especially beneficial during periods of higher interest rates, which can make homeownership less affordable.
  • Eliminates private mortgage insurance: On a conventional loan, you'll be able to avoid private mortgage insurance (PMI) with a 20% down payment. Depending on the situation, PMI can cost between 0.2% and 2% of your loan amount every year, so a large down payment could mean big savings.
  • Can help you get a lower rate: The more money you put down, the less of a risk you are to the lender. As a result, a 20% down payment could help you secure a lower interest rate, which could be a big deal if rates are generally high. Even with lower market rates, a slightly lower interest rate could save you tens of thousands of dollars in the long run.

Downsides of a 20% Down Payment

  • Can take a while to achieve: Unless you already own a home with significant equity, it can take several years to save up enough money to meet your down payment goal. Also, keep in mind that you'll need to have enough cash for closing costs and other savings needs.
  • Won't provide as much benefit when rates are low: If mortgage rates are low, you could potentially put that money to better use by investing it or paying down high-interest debt. That could be the case even if you have to pay PMI.
  • Could leave you without emergency savings: If you drain your savings account to make your down payment, you may end up in trouble if you need money for home repairs, maintenance or other emergency expenses. And if you were to try to take out a home equity loan to get some of that money back, you could end up with more closing costs.

How Much Should You Put As a Down Payment for a House?

It can be difficult to decide how much money to put down, especially if you're a first-time homebuyer. Here are some things to consider as you make your decision:

  • Consider how long it'll take to achieve your goal of a 20% down payment.
  • Determine whether you'll have enough money left over for closing costs, emergency savings and other cash reserve needs.
  • Think about where the money will come from—do you have equity in an existing home, or will you need to save up on your own?
  • Consider the current interest rate environment and whether the money will be put to better use elsewhere.
  • Consider the loan program you're planning to use—government-backed loans don't require a 20% down payment to avoid PMI.
  • Think about your loan's loan-to-value ratio (LTV) and how a smaller down payment could put you at risk of being upside down on your loan.

If you're having a hard time deciding, consider consulting with a mortgage professional to get some objective, expert advice.

Focus on More Than Just the Down Payment

While it's important to determine how much to put down on your home purchase, it's only one aspect of the homebuying process. It's also crucial that you monitor your credit to ensure that it's in good enough shape to secure favorable terms, and also look for ways to improve your credit, reduce your debt-to-income ratio and trim your budget to make your new mortgage payment more manageable.