Somewhere along the way, everyone absorbed the same rumor: you need 20% down to buy a house. For a $400,000 home, that's $80,000 in cash, just to walk in the door. If that number has been quietly talking you out of even trying, good news: it's mostly a myth. Let's replace it with the real numbers.
The 20% myth, and what's actually true
You do not need 20% down to buy a home. Here is what real loan programs actually require:
- FHA loans (backed by the Federal Housing Administration) allow as little as 3.5% down if your credit score is 580 or higher. If your score is between 500 and 579, you can still qualify, but the minimum down payment rises to 10%.
- Conventional loans (not government-backed) have a program called "Conventional 97," along with Fannie Mae's HomeReady and Freddie Mac's Home Possible programs, that allow as little as 3% down for eligible buyers, often first-time buyers or those meeting income limits. Standard conventional loans outside those programs more commonly require at least 5% down for a primary home.
- VA loans (for eligible veterans and service members) and USDA loans (for eligible rural properties) can go as low as 0% down for qualified buyers. Eligibility rules for both are specific, so this is a "check with a lender" line, not a promise.
So where did 20% come from? It's the threshold that lets you skip an extra monthly cost called PMI, which we'll explain in a moment. It was never a requirement to buy at all.
Closing costs: the fees that finish the deal
Closing costs are the fees you pay to actually complete, or "close," the purchase. They are separate from your down payment. They commonly run in a range of roughly 2% to 5% of your loan amount, though the exact figure depends heavily on your state, your lender, and the deal itself, so treat that as a planning range, not a promise. Typical line items include:
- Loan origination fee (the lender's fee for processing your loan)
- Appraisal fee (paying a licensed appraiser to confirm the home's value)
- Title insurance and title search (confirming the seller actually owns the home free of hidden claims)
- Recording fees (the county charges to officially record the new deed)
- Prepaid items (property tax and homeowners insurance reserves the lender collects upfront)
- Attorney fees, required in some states, optional in others
You will see all of these spelled out on a form called the Loan Estimate, which we cover fully in Level 4.
PMI: what it is, and who it actually protects
Here's the sentence that surprises almost every first-time buyer: PMI does not protect you. PMI stands for Private Mortgage Insurance, and it protects the lender if you stop paying your loan. It's typically required on conventional loans when your down payment is under 20%, because a smaller down payment means more risk for the lender, not for you.
The cost varies with your credit score and your loan-to-value ratio, but it is usually a modest add-on to your monthly payment, higher if your credit score is lower. The genuinely good news is federal law, the Homeowners Protection Act, requires your PMI to automatically end once your loan balance is scheduled to reach 78% of your home's original value, based on your original amortization schedule, as long as you're current on payments. You can also request cancellation earlier, once you reach 80% loan-to-value, if you ask and meet your lender's requirements.
FHA loans work differently: they use a separate mortgage insurance system (MIP) with its own rules about when it can and can't be removed, sometimes lasting the life of the loan depending on your down payment. Ask your specific lender how FHA mortgage insurance would apply to your loan before you commit to that path.
Cash to close is not the same as your down payment
This trips people up constantly. Your down payment is the portion of the purchase price you're paying upfront, out of your own funds, that isn't borrowed. Your cash to close is a bigger number: your down payment, plus your closing costs, plus any prepaid items, minus any credits or concessions the seller agreed to give you. Two buyers with the identical down payment percentage can walk into closing needing very different total cash, depending on their closing costs and any negotiated credits. Never assume "cash to close" equals "down payment." Ask for both numbers, in writing, from your lender.
The first-year costs nobody mentions
Once the keys are in your hand, a few costs tend to arrive that catalogs and calculators skip: the moving truck itself, an immediate small repair or two that inspection didn't catch, new-owner utility connection deposits, HOA dues if the home has them, and basic furniture or appliances for a space that's suddenly bigger than your old one. None of these are dealbreakers. They're just real, and knowing they're coming means they never blindside you.
Walking in bold
You now know the true shape of the money: a down payment that can be as low as 3 to 3.5% for many buyers, closing costs on top of that, PMI that protects the lender but automatically disappears by law once you've built enough equity, and a "cash to close" number that is genuinely different from your down payment. Nobody can quietly surprise you with a number you already understand.