Guides for loan officers

Down Payment Options Beyond Twenty Percent

By Travis · November 6, 2026 · 3 min read

Ask a first time buyer how much they need for a down payment, and the answer is often twenty percent, stated as if it were a rule. It is a useful benchmark, and it does avoid private mortgage insurance on a conventional loan in many cases, but it is not a requirement for buying a home. Several loan types allow much less down, and each one comes with its own tradeoffs.

Conventional loans with less down

Conventional loans, the kind sold to Fannie Mae and Freddie Mac, often allow down payments as low as three percent for qualified buyers. The tradeoff tends to be private mortgage insurance, which is an added monthly cost that protects the lender, not the borrower, until enough equity is built. That insurance can sometimes be removed later, once the balance and the home value meet the servicer's requirements, but the timing and the process vary, so it is worth asking about up front.

A lower down payment also means a larger loan, which means a larger monthly payment and more interest over time. That is not a reason to avoid it. It is a reason to compare the total monthly cost, not just the cash needed at closing.

Government backed options

Loans backed by the Federal Housing Administration often allow down payments around three and a half percent, and they tend to be more flexible on credit history than conventional loans. They also carry their own mortgage insurance, with rules that differ from conventional insurance, including how long it stays in place.

Loans backed by the Department of Veterans Affairs may allow eligible veterans and service members to buy with no down payment, subject to eligibility and other qualifications. Loans backed by the Department of Agriculture may allow no down payment for eligible homes in eligible rural areas, again subject to income and location rules. Neither option is a promise of approval, and each has its own fees and requirements, but both are worth a conversation for buyers who qualify.

What else affects the choice

Credit score, income, debts, and the price of the home all shape which options are actually available to a given buyer. A buyer with a strong credit profile may find a conventional low down payment loan cheaper over time. A buyer with a thinner credit file may find a government backed loan more workable, even with higher insurance costs.

There is also the question of cash reserves. Putting every available dollar into a down payment can leave a household with no cushion for moving costs, repairs, or a slow month. A slightly smaller down payment that leaves a reserve tends to be the calmer choice for many buyers, even if the monthly payment is a little higher.

The comparison to make

The honest comparison is not the down payment percentage alone. It is the cash needed at closing, the monthly payment including insurance and taxes, and how long the buyer expects to stay in the home. Run those three numbers side by side for each option, and the right choice usually becomes clearer.

That kind of side by side explanation is exactly what clients need before they start house hunting, and it is the kind of topic LO Market Update puts in front of your database every month under your name.

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