A third of first-time buyers are waiting until they can put 20% down. For many of them, that wait costs more than the PMI they were trying to avoid. Here's the actual math - and the three cases where 20% is genuinely the right call.
At a glance
No. The 20% rule is not a lender requirement - it's a threshold that eliminates PMI on conventional loans. Conventional loans allow 3% down. FHA loans allow 3.5%. VA and USDA allow 0%. The average first-time buyer in 2025 put down 10%, not 20%. Whether 20% is right for you depends on one specific calculation: does waiting to save more cost more than the PMI you'd pay by buying now?
The 20% rule has no regulatory origin. It became conventional wisdom because it was the threshold at which lenders historically didn't require mortgage insurance - making the loan cheaper and simpler to underwrite. Before the modern PMI market existed, 20% was a genuine hard floor for most lenders. That era ended decades ago.
Today the rule persists primarily as cultural mythology. A Freddie Mac survey found that nearly a third of prospective buyers believe 20% is required to purchase a home - a misconception that delays or prevents homeownership for millions of people who already qualify. The median down payment for first-time buyers in 2025 was 10%. The median for all buyers was 19% - driven up by repeat buyers using equity from prior homes.
| Loan type | Min. down | PMI required? | Credit score min. |
|---|---|---|---|
| Conventional | 3% | Yes, until 20% equity | 620+ |
| FHA | 3.5% | Yes, for life of loan* | 580+ |
| VA (veterans) | 0% | Never | Flexible |
| USDA (rural) | 0% | No (guarantee fee instead) | 640+ |
*FHA MIP lasts the life of the loan if down payment is under 10%. With 10%+ down, MIP cancels after 11 years.
PMI is the cost people are trying to avoid when they aim for 20% down. Before deciding if it's worth waiting to eliminate it, you need to know what it actually costs.
PMI rate range
0.3–1.15%
of loan balance per year
On a $320,000 loan: $80–$307/month
Typical first-time buyer
~$150/mo
720+ credit, 10% down, $350k home
Cancels automatically at 22% equity (~year 8)
When PMI cancels
22% equity
automatic by law (Homeowners Protection Act)
Request removal at 20% - don't wait for automatic
This is the calculation almost nobody runs - and it changes the answer completely. On a $400,000 home with 3% annual price appreciation, here is what happens when you wait two years to hit 20% down.
Home price: $400,000
Down payment: $20,000 (5%)
Loan: $380,000
PMI: ~$175/mo (0.55%)
PMI paid over 8 years: ~$16,800
Home value in 2 years (3% growth): $424,720
Equity after 2 years: ~$64,000
Total PMI paid in 2 years: $4,200
Equity gained in 2 years: ~$64,000
Net position: strongly positive
Home price in 2 years: $424,720
Down payment needed (20%): $84,944
Extra you had to save: +$64,944 vs buying now
Rent paid in 2 years: ~$48,000 (at $2,000/mo)
PMI avoided: $4,200
Extra cash needed at close: +$64,944
PMI "saved": $4,200
Net cost of waiting: ~$108,000 more to access the same house
Waiting 2 years to avoid $4,200 in PMI costs an extra $64,000 in purchase price - in a market with only 3% annual appreciation. The PMI was not the expensive option.
Assumes $400,000 home, 3% annual appreciation, $2,000/mo rent, 6.4% mortgage rate, 30-year fixed. Actual results vary by market.
Run the math for your exact situation →The math above doesn't mean 20% is always wrong. There are three specific situations where saving to 20% before buying makes clear financial sense.
The "wait" math breaks down when home prices aren't appreciating. If your target market is flat or declining, the 3% annual price growth assumption doesn't apply. In that case, waiting to hit 20% costs you PMI savings without the offset of chasing a rising price target. Check price trends in your specific zip code before deciding.
PMI rates depend on your credit score and down payment tier. With a score below 680 and only 3–5% down, your PMI rate can hit 1%+ - that's $300+/month on a $360,000 loan. At those rates, the PMI savings become meaningful enough to shift the math toward waiting. Check your exact PMI quote before deciding how much to put down.
If buying with 5% down pushes your front-end DTI above 30%, the additional PMI is a symptom of a larger problem - the payment itself is too high for your income. In that case, waiting isn't about PMI avoidance. It's about buying a home at a payment level you can actually sustain.
There are legitimate strategies to reduce or eliminate PMI without saving to 20%. Most first-time buyers never hear about them.
Fannie Mae HomeReady and Freddie Mac Home Possible allow 3% down with reduced PMI rates for buyers at or below 80% of area median income. PMI rates are significantly lower than standard conventional PMI.
Income limits applyTake a first mortgage for 80% of the home price, a second mortgage for 10%, and put 10% down yourself. No PMI because the first loan stays at 80% LTV. Second mortgage typically carries a higher rate - run the math vs PMI to confirm it saves money.
No PMISome lenders absorb the PMI cost in exchange for a slightly higher interest rate - typically 0.25–0.375% above market. Unlike standard PMI, LPMI doesn't cancel when you hit 20% equity. Only makes sense if you plan to refinance or move within 5–7 years.
Higher rate tradeoffVeterans, active-duty service members, and surviving spouses qualify for VA loans with no down payment and no PMI requirement. VA loans typically carry lower rates than conventional. If you qualify, this is almost always the best option available.
Best option for eligible buyersState and local DPA programs can cover 3–5% of the purchase price as a grant or forgivable loan - bringing you to 20% down without the years of saving. Federal Home Loan Banks allocated over $30M in 2026 homebuyer grants. Most buyers never ask about them.
Up to $30,000 availablePMI is not permanent. There are three ways to accelerate removal - and one is free.
Write to your servicer when you hit 20% LTV based on original purchase price. They're required to remove PMI. Don't wait for the automatic 22% cancellation.
If your home's value has risen, you may already be at 20% equity based on current value - not purchase price. Request a new appraisal from your servicer. Rules vary by loan type.
Extra payments accelerate the timeline directly. Even $100–$200/month extra can cut 1–2 years off your PMI obligation.
Primary tool
20% Down Payment Calculator
Compare 5%, 10%, and 20% down on your target home price. See monthly payment, PMI cost, and total interest for each scenario.
In an appreciating market, waiting to save from 5% to 20% almost always costs more than the PMI you were trying to avoid. The math is not close. Run the numbers before you delay.
20% down IS the right call in three cases: flat or declining market, PMI rate above 0.8% due to low credit, or the payment itself would be a stretch at any down payment level.
If you're VA-eligible, skip this entire conversation. Zero down, no PMI, below-market rate. There is no better loan product available in the US market for qualifying buyers.
Estimates based on your inputs. Actual results may vary. Terms →