How Much Do You Really Need for a Down Payment?

Jul 30, 2020
Family moving

Buying a home is a lifetime goal for many and is one of the largest purchases likely made so it's important to take the right decisions especially in determining your down payment. How much you need for a down payment depends on the type of loan and how much the house costs; therefore, home-buyers choose to wait and save money to use as a down payment before purchasing property. However, the recommended down payment rate of 20% doesn’t have to be the standard amount for everyone.

How does a down payment work on a home loan?

It’s possible to obtain a mortgage without a down payment or with a low down payment using special lending programs, but keep in mind that most lenders require you to make a down payment. The reason for requiring a down payment on a home is because down payments reduce the risk to the lender. Homeowners with their own money invested are less likely to default on their mortgages. Also, if the lender has to foreclose and sell the property, it’s not on the hook for the entire purchase price, which can limit its potential losses if the home is sold for less than the remaining mortgage balance.

Most lenders prefer a down payment of 20% or higher to qualify for a conventional loan, but if you don’t have 20% there are still loan options you might consider where you can put down less. According to a study from The Urban Institute (, more than two-thirds of renters say the down payment is their biggest barrier to homeownership. While a 20% down-payment is the general approach, it is possible to purchase a home with less.

Pros of a 20% Down Payment:

  • You’ll get a lower mortgage rate: Mortgages are priced on risk and the less money down from you means more risk for the bank. If you put 20% down, the bank is protected against home values dropping and you get a better deal.
  • Fewer fees—If you put less than 20% down, in order to buffer against risk, a bank will require you to pay for private mortgage insurance (PMI). This is calculated on your remaining loan balance. 
  • Easier to refinance: Most lenders want to see that you have 20% equity in your home in order to offer you a refinanced mortgage. If you don’t have 20% equity in your home, this can limit what you can qualify for and you may not be able to take advantage of better deals that become available to you.


    Cons of a 20% Down Payment:

  • If you have the money for a 20% down payment but you don’t want to put it in your home, you can choose to do something else with it, such as investing it. In the case of an emergency, and you need money, and the only money you have is in your home, you’d have to sell your home, or do a cash-out refinance in order to pull the money out.


  • If you don’t have another option but homeownership makes sense—choosing to put less than a 20% down payment can be a smart option in order to become a homeowner. It can make sense particularly if you don’t plan to move soon or you won’t need to refinance soon.


The Police Credit Union’s offers a low down payment option, including a fixed-rate loan with a 3% down-payment, making home ownership more affordable for qualified buyers.

The Police Credit Union offers a complete mortgage lending solution. Visit the Mortgage Center for support through your home buying process, search loan options, check rates and apply today!

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