You Don't Need 20% Down to Buy a Home

The 20% Down Myth

Here's where the myth comes from: putting 20% down on a conventional loan lets you avoid Private Mortgage Insurance (PMI), which protects the lender if you default. That's true. But nowhere is it written that 20% is the minimum — it's just the threshold for avoiding that extra monthly cost. In reality, millions of buyers purchase homes every year with far less.

According to the National Association of Realtors, the median down payment for first-time buyers in 2025 was just 8% — and many bought with even less. The idea that you need to show up with six figures in cash keeps people renting for years when they could be building equity.

Your Real Down Payment Options

FHA Loans — 3.5% Down

An FHA loan is insured by the Federal Housing Administration and is one of the most accessible mortgage programs available. With a credit score of 580 or higher, you can put down as little as 3.5% of the purchase price. FHA loans also tend to have more lenient credit requirements, making them a strong option for first-time buyers or anyone rebuilding their credit.

On a $700,000 home — roughly the entry point in many Santa Clarita neighborhoods — a 3.5% down payment is just $24,500. Compare that to the $140,000 you'd need for a 20% down payment on the same home. That's a difference of over $115,000 in cash you'd need to save before you could even make an offer.

VA Loans — 0% Down

As a U.S. Army veteran, this one hits close to home. VA loans allow eligible veterans, active-duty service members, and qualifying surviving spouses to buy a home with zero down payment. There's no PMI, and VA loan rates are consistently competitive. This is one of the most valuable benefits our military has earned — and one of the most underused.

If you served and haven't looked into your VA home loan benefit, you might be sitting on the single biggest advantage in homebuying. Zero down, lower rates, no PMI — it's hard to beat that.

Conventional Loans — As Low As 3% Down

Many conventional loan programs now offer down payments as low as 3%. Fannie Mae's HomeReady and Freddie Mac's Home Possible programs are designed specifically for low- to moderate-income borrowers and first-time buyers. These programs also allow for down payment assistance from gifts, grants, or seller concessions.

Yes, you'll pay PMI until you reach 20% equity — but here's the key: PMI isn't the boogeyman it's made out to be. On a $700,000 loan, PMI typically costs between $150 and $300 per month, and it drops off once you've built enough equity. Sometimes the math of buying sooner with PMI beats the math of waiting years to save 20%.

Real Numbers: What Monthly Payments Actually Look Like

Let's compare three scenarios on a $700,000 home with a 6.5% interest rate, assuming you factor in PMI where applicable and property taxes and insurance at typical Southern California rates.

The difference between putting 20% down and putting 3% down is roughly $450 per month — because of PMI and the larger loan balance. But here's what really matters: to save that extra $119,000 in cash, you might spend two or three more years renting at $2,800+ per month. That's $67,000 to $100,000 in rent payments — money that builds zero equity for you.

The Real Cost of Waiting

This is the part nobody talks about when they tell you to "just save up." Every year you wait to buy, you face two competing forces:

• Home prices tend to rise. In Southern California, the median home price has increased year over year for most of the past decade. A $700,000 home today could easily be $735,000 or more next year — meaning your 20% down payment target just moved from $140,000 to $147,000.
• Rent keeps going up too. While you're saving for a down payment, your rent is likely increasing 3–5% each year. That's money you'll never get back.

Meanwhile, every month you own a home, you're paying down your mortgage balance and building equity. Even with PMI, homeownership is how most American families build long-term wealth. Waiting for the "perfect" down payment can mean missing years of equity growth.

What About PMI — Is It Really That Bad?

Let's put it in perspective. On a $700,000 loan, PMI might cost you $200 per month. That's $2,400 per year. But in that same year, if home prices rise 4%, your $700,000 home gains $28,000 in value — nearly 12 times the cost of PMI. PMI is temporary; home-price appreciation and equity building are long-term wealth drivers.

Plus, once your loan-to-value ratio hits 80% — either through payments or home appreciation — you can request PMI removal. Some conventional loans drop PMI automatically at 78%. FHA loans with more than 10% down remove MIP (their version of PMI) after 11 years.

Down Payment Assistance Programs

Beyond low-down-payment loans, there are down payment assistance (DPA) programs throughout Southern California that can help cover part or all of your down payment and closing costs. These include:

• CalHFA (California Housing Finance Agency): Offers down payment assistance loans and below-market interest rates for first-time buyers.
• FHA + DPA combos: Many local programs pair with FHA loans to bring your out-of-pocket down payment close to zero.
• Gift funds: Conventional and FHA loans allow the entire down payment to come from family gifts — documented properly, of course.
• Seller concessions: You can negotiate for the seller to contribute toward your closing costs, reducing what you need to bring to the table.

Who This Is For

If any of these sound like you, you may be closer to homeownership than you think:

• A first-time buyer who's been renting and saving but feels like the goalposts keep moving
• A veteran or active-duty service member who hasn't explored the VA loan benefit
• A growing family ready to stop paying someone else's mortgage
• Anyone who was told they need "a lot of money" to buy and believed it

Let's Explore Your Options Together

Every buyer's situation is different. Your credit score, income, savings, military service, and goals all play into which loan program and down payment strategy is right for you. The worst thing you can do is assume you don't qualify without actually checking.

I work with experienced lenders who specialize in low-down-payment and zero-down programs. If you've been on the sidelines because you thought you needed 20% down, let's have a conversation. I'll help you understand exactly where you stand and what's possible — no pressure, no obligation, just honest answers.

Educated decisions create better results. And the decision to explore your options costs nothing. Waiting could cost you everything.