The most persistent myth in home buying is that you need 20% down. You don't. For most loan types the actual minimum is 3–5%, and for VA and USDA loans it's zero. The 20% number comes from one real thing — avoiding PMI — but that's a cost you can calculate and decide whether it's worth it, not an immovable rule.
Here's what the actual minimums look like, what PMI costs and when it goes away, and how to think about how much to actually put down given your situation.
Minimum down payment by loan type
| Loan type | Minimum down | Who it's for |
|---|---|---|
| Conventional | 3% | Most buyers with decent credit (620+). The 3% option typically requires you to be a first-time buyer or meet income limits. Otherwise 5% is the floor.Fannie Mae HomeReady and Freddie Mac Home Possible offer 3% with expanded eligibility. |
| FHA | 3.5% | Buyers with credit scores as low as 580. More flexible on debt-to-income ratio. FHA has both upfront and annual mortgage insurance.If your score is 500–579, FHA requires 10% down. Below 500, no FHA. |
| VA | 0% | Active duty, veterans, and surviving spouses. No down payment, no monthly PMI. One of the best loan programs available.There's a VA funding fee (0.5–3.3% of loan, can be financed) unless you have a service-connected disability. |
| USDA | 0% | Buyers in eligible rural and suburban areas with moderate income. Limited geography — most of the Bay Area doesn't qualify, but parts of the Central Valley and North Bay do.Check eligibility at the USDA's property eligibility map before assuming this applies to you. |
| Jumbo | 10–20% | Loans above the conforming limit ($806,500 in most CA counties for 2025). Requirements vary by lender — generally stronger credit and more reserves required. |
In high-cost California counties (Santa Clara, San Mateo, SF, etc.), the 2025 conforming loan limit is $1,209,750 for a single-family home — meaning conventional financing is available for much of the Bay Area market.
What is PMI and what does it actually cost?
PMI — Private Mortgage Insurance — is what lenders require when your down payment is less than 20% on a conventional loan. It protects the lender if you default, not you. You pay it, they benefit.
Cost: Typically 0.5–1.5% of the loan amount annually, depending on your credit score and loan size. On a $700,000 loan, that's roughly $300–$875 per month added to your payment.
When it goes away: On conventional loans, PMI is not permanent. You can request removal when your equity reaches 20% (confirmed by a new appraisal), and lenders are legally required to cancel it automatically when your loan balance reaches 78% of the original purchase price. At today's appreciation rates in California, many buyers hit that threshold faster than expected.
FHA is different: FHA mortgage insurance works differently. If you put less than 10% down on an FHA loan, the annual MIP (mortgage insurance premium) stays for the life of the loan — it doesn't fall off at 20% equity. This is why FHA is sometimes the right tool to get in the door, but refinancing into a conventional loan later can make sense once you've built equity.
The real question: how much should you put down?
The math isn't just "more down = better." Here's how to think about it:
The case for putting less down
- Preserve cash. Buying a home comes with immediate costs beyond the down payment — closing costs (2–5%), moving costs, repairs, furniture. Running your savings to zero to make a larger down payment is risky.
- Opportunity cost. Money sitting in home equity earns your home's appreciation rate. Money invested in a diversified portfolio has historically returned more. Putting in 20% vs 5% means $X more sitting in illiquid equity.
- PMI is temporary. On a conventional loan, PMI goes away. If your choice is "wait two more years to save 20%" vs "buy now with 10% and pay PMI for 3 years," you may come out ahead buying sooner in an appreciating market.
The case for putting more down
- Lower rate. Lenders price loans based on LTV (loan-to-value). Lower LTV often means a slightly better rate, which compounds over 30 years.
- Smaller payment. A bigger down payment means a smaller loan means a smaller monthly obligation. If you're right at the edge of what you can afford monthly, this matters.
- Stronger offers. In a competitive market, a larger down payment signals financial strength to a seller — especially if you're waiving appraisal contingencies.
- Avoid jumbo. In high-cost areas, putting more down to stay under the conforming limit can get you a better rate than a jumbo loan.
A side-by-side example
On an $800,000 home at 6.875%:
5% down PMI applies
20% down No PMI
The 20% scenario saves ~$1,170/month — but required $120,000 more upfront. At that monthly savings rate, it takes about 8.5 years just to break even on the extra cash deployed, not accounting for what that $120K could have earned if invested elsewhere.
Neither answer is automatically right. It depends on your cash reserves, your income trajectory, the local market, and how long you plan to stay.
Don't forget closing costs. Down payment gets all the attention, but closing costs are real money — typically 2–3% of the purchase price for buyers in California ($16,000–$24,000 on an $800K home). Budget for both. Running out of liquidity at closing is one of the most common surprises for first-time buyers.
Down payment assistance in California
California has several programs that can help with down payment or closing costs, particularly for first-time buyers:
- CalHFA (California Housing Finance Agency) — offers deferred-payment second loans for down payment and closing costs, paired with first mortgages. Income limits apply.
- Dream For All — CalHFA's shared appreciation loan program. Provides up to 20% down with the state taking a proportional share of future appreciation. Has been oversubscribed each time it opens.
- Local programs — many counties and cities (Santa Clara County, City of San Jose, etc.) have their own assistance programs with varying eligibility and amounts.
These programs have income limits and change frequently, so the best move is to ask your loan originator specifically about what's available at the time you're buying.
Want to run these numbers for your situation?
The right down payment depends on your specific income, credit, savings, and goals. I'll walk through the options with you and show you the actual payment difference — no pressure, no credit pull to start.
Talk through your options →Educational purposes only. Loan programs vary. Not legal, tax, or financial advice. Contact me for individualized guidance.
← Back to all notes