When buying a home, a 20% down payment is ideal for better mortgage terms, but not mandatory. Lenders accept 5% down or less. Saving at least 20% helps avoid private mortgage insurance (PMI), a fee added to monthly payments with less than 20% down on conventional loans.

PMI protects lenders if borrowers default on their mortgage. Payment amounts vary based on loan amount, type, credit score, and down payment size, typically ranging from 0.20% to 2% of the original loan amount annually. For a $400,000 mortgage, a 0.3% PMI would cost $1,200 annually.

PMI on conventional loans can be canceled at 20% equity or when the loan balance reaches 78% of the property’s original value. While a 20% down payment avoids PMI and lowers interest rates, it may not be feasible for many buyers, as saving for it can take decades in some areas.

The typical down payment for first-time home buyers in 2024 was 9%. Options for smaller down payments include conventional loans with as little as 3% down, FHA loans with 3.5% down, and USDA and VA loans with no down payment required. Down payment assistance programs are also available for those in need. The Department of Housing and Urban Development offers down payment assistance through grants, forgivable loans, and subsidized housing. Check the National Council of State Housing Agencies for local partners. Mortgage lenders like Rocket Mortgage offer 1%-down programs. Most lenders accept down payments from 0% to 5%. Conventional loans can require as little as 3% down. Government-backed programs, like FHA loans, offer more lenient requirements. PMI can range from 0.20% to 2% of the loan value annually.

Read more at Yahoo Finance: This map shows how long it takes Americans to save for a 20% vs. 5% down payment