Should I buy a house with less than 20% down?

Short answer: for many buyers, yes — it's fine, and often smarter than waiting. The 20% down payment is a good goal, not a requirement. Most first-time buyers put down far less. The price you pay for a smaller down payment is private mortgage insurance (PMI) and a bigger loan, but the price of waiting is years of rent and the risk of rising home prices.

The real decision isn't "20% or nothing." It's whether the benefits of buying now outweigh the costs of a smaller down payment. Let's break down both sides.

What less than 20% down actually costs you

When you put down less than 20% on a conventional mortgage in the US, your lender will require private mortgage insurance — PMI. It protects the lender, not you, in case you default. It typically costs between about 0.46% and 1.5% of the loan amount per year, according to data from the Urban Institute cited by Bankrate — on a $300,000 loan, that's roughly $115 to $375 a month, added to your mortgage payment.

Your exact PMI cost depends on your credit score, the loan size, the loan type, and how far short of 20% you are. A buyer putting 15% down with excellent credit pays meaningfully less than a buyer putting 5% down with average credit. It's a sliding scale, not a flat penalty.

The good news: PMI isn't forever. On conventional loans, you can request cancellation when your loan balance drops to 80% of the home's original value, and your lender is legally required to remove it automatically at 78% (in the US, under the Homeowners Protection Act) as long as you're current on payments. With normal payments on a 30-year loan, that typically takes several years — but extra principal payments or rising home values can get you there faster.

The real cost of waiting to save 20%

Here's the math people often skip. Imagine you're looking at a $400,000 home and you have $40,000 saved — 10%. Saving another $40,000 for the full 20% might take you three or four years. What happens in those years?

First, you keep paying rent. If your rent is $2,000 a month, that's $72,000 to $96,000 paid to a landlord over three to four years — money that builds zero equity.

Second, home prices may rise. They don't always, but when they do, your target moves. If that $400,000 home appreciates even 3% a year, it costs about $437,000 after three years. Your 20% down payment target just grew from $80,000 to $87,400 — and your mortgage will be bigger than if you'd bought earlier.

Third, you're paying PMI for a few years, yes. But compare: $230 a month in PMI (a realistic estimate on a $360,000 loan with average credit) for five years is about $13,800. That's real money — but it's much less than $72,000 in rent over three years. PMI is often the cheaper path, which is why it exists: it lets you buy before you've saved the ideal amount.

Loan programs that expect less than 20%

The idea that 20% is standard ignores how most buyers actually purchase. Several US loan programs are designed for smaller down payments:

Conventional loans with PMI: Many conventional lenders accept 3–5% down, adding PMI until you reach 20% equity.
FHA loans: Backed by the Federal Housing Administration, these allow down payments as low as 3.5% for borrowers with decent credit. The trade-off is mortgage insurance premium (MIP), which works differently from PMI — there's an upfront fee plus an annual fee, and the annual fee can stick around for the life of the loan unless you refinance.
VA loans: For eligible veterans and service members, these require no down payment at all and no monthly mortgage insurance — one of the best deals in homebuying, if you qualify.
USDA loans: For eligible rural and suburban areas, these also allow zero down payment for qualifying buyers.

Each program has its own rules, fees, and eligibility requirements, and they change over time. A good lender or mortgage broker can lay out which ones you qualify for and what each costs over the full life of the loan — not just the monthly payment.

When a smaller down payment is risky

Buying with less than 20% down isn't always the right call. Be more cautious when:

Your emergency fund would be wiped out. The down payment shouldn't leave you with no cash reserves. A house comes with surprise expenses — a broken water heater doesn't care about your equity. Keep three to six months of expenses liquid after closing, minimum.
You might move within a few years. Closing costs run roughly 2–5% of the purchase price, and with a small down payment you have almost no equity cushion. If you sell after two years, you could lose money — especially if prices dip. The five-to-seven-year rule is a decent guide: buy if you'll stay that long.
Your credit is weak. Low down payment plus low credit score means the most expensive PMI and the highest interest rates. Sometimes the better move is to spend a year improving your credit — which lowers both your rate and your PMI — rather than rushing in.
The monthly payment stretches you. A smaller down payment means a bigger loan, higher monthly payments, and less room in your budget. If the payment leaves you with nothing left over each month, that's house-poor territory, and it's miserable no matter how good the investment math looks.

How to get rid of PMI faster

If you buy with less than 20% down, PMI doesn't have to linger. You can shorten its life:

Make extra principal payments. Even an extra $100 or $200 a month toward principal accelerates your path to 20% equity — and reduces your total interest too.
Request a reappraisal. If home values in your area rise, your equity can cross the 20% threshold on appreciation alone. You can ask your servicer for a new appraisal (you'll pay for it) and request PMI cancellation based on the new value.
Refinance. If rates drop or your equity has grown past 20%, refinancing into a new loan without PMI can make sense — though refinancing has its own closing costs, so do the math.
Watch the automatic drop. Your lender must cancel PMI automatically at 78% loan-to-value on the original amortization schedule if you're current on payments. You can request it at 80%. Know both numbers and mark them on your calendar.

The "I must have 20%" myth, examined

Where did the 20% rule come from? It's the threshold where lenders historically felt safe enough to skip mortgage insurance. It was never a legal requirement or a financial law of nature — it's a risk-management convention that turned into folk wisdom.

Folk wisdom isn't always wrong. Putting 20% down gets you no PMI, a smaller loan, a lower monthly payment, and instant equity. If you can do it without draining your reserves or delaying for many years, it's genuinely the better deal.

But treating it as mandatory keeps people renting long past the point where buying would have helped them. Many first-time buyers put down 5–10%, pay PMI for a few years, build equity, and come out far ahead of the alternate timeline where they kept renting until they could hit 20%. The question was never "is 20% better than 10%?" — of course it is, all else equal. The question is "is waiting three years to get from 10% to 20% better than buying at 10% now?" And often, the answer is no.

Running your own comparison

Here's a simple framework:

Calculate the waiting cost: your monthly rent × the months it would take to save 20% (plus estimated home price appreciation, if any).
Calculate the early-buying cost: PMI per month × estimated months until you hit 20% equity, plus the higher interest on the bigger loan.
Compare honestly, and include the non-financial factors: stability, the ability to renovate, not dealing with a landlord, and the stress of a tight budget.

Also talk to at least two or three lenders. PMI quotes vary between lenders, rates vary, and some lenders offer programs with reduced or no PMI at certain down payment levels. This is one of the highest-leverage hours of shopping you'll ever do.

A smaller down payment is a tool, not a mistake. Used deliberately — with an emergency fund intact, a long enough timeline, and a plan to kill PMI early — it can get you into homeownership years sooner. The buyers who regret small down payments are usually the ones who stretched too far or bought too briefly. Avoid those two mistakes, and less than 20% down is a perfectly reasonable way to buy a home.