You Do Not Need Twenty Percent

There is one number standing between a lot of families and a mortgage, and it is a number nobody actually requires.

Twenty percent down is the threshold at which a conventional loan no longer requires private mortgage insurance. That is the whole origin of it. It was never a minimum to buy; it was the point at which one particular cost disappears.

Somewhere that turned into folklore, and the folklore keeps people renting for an extra decade while the rent counts for nothing until they make it count.

FHA. Generally 3.5 percent down, with more flexible credit requirements. The most common route for first-time buyers.

Conventional. Some programs allow as little as 3 percent down for qualifying buyers, particularly first-time buyers.

VA. For eligible veterans and service members: no down payment, no private mortgage insurance. It is the strongest mortgage product in the country and it goes badly underused.

USDA. No down payment for qualifying homes in eligible areas, and the eligible areas are broader than the word rural suggests. Check the map rather than assuming.

This is the part people do not know exists.

Nearly every state and many counties and cities run down payment assistance programs: grants, forgivable loans that disappear after you live in the home a set number of years, or deferred second loans repaid only on sale. Some are first-time buyer only, where first-time usually means not having owned in three years, which includes many people who owned before.

Ask a lender directly which programs they are approved to work with, and ask the city and county housing department separately, because lenders only mention the ones they participate in.

“The twenty percent was never a rule. It was a fee threshold that became a superstition.”

Private mortgage insurance is what you pay for putting less down. It is a real monthly cost and it is not a scam, it is the price of entry.

The key distinction: on conventional loans PMI can generally be removed once you have enough equity, sometimes automatically and sometimes on request with an appraisal. On most FHA loans the mortgage insurance lasts the life of the loan, which is a reason many buyers refinance out of FHA later.

Running the numbers usually shows that paying PMI for a few years costs less than the rent and appreciation you skip while saving to twenty percent.

The gap between Black and white homeownership has barely moved in fifty years. A meaningful part of what maintains it is a number that was never a requirement.