The 20% down payment myth keeps more people renting than almost any other misconception. The median down payment for first-time buyers is just 6–8%. And with down payment assistance programs, you might need even less.
The 20% rule originated when it was the only option for most borrowers. Today, there are dozens of loan products with low or zero down payment requirements. The 20% threshold still matters for one thing: avoiding private mortgage insurance (PMI). But PMI isn't the deal-breaker people think it is.
On a $300,000 home with 5% down, PMI costs about $125–$200/month. Compare that to the additional $45,000 you'd need to save to reach 20% down. At a savings rate of $1,000/month, that's nearly 4 years of additional renting — during which time prices may rise 10–15%, erasing your savings advantage entirely.
FHA loans require just 3.5% down with a 580+ credit score. On a $300,000 home, that's $10,500. FHA loans are more forgiving on credit history and allow higher DTI ratios. The catch: FHA mortgage insurance (MIP) of 0.85% annually stays for the life of the loan — you need to refinance to a conventional loan to remove it. Still, FHA is the most accessible path for buyers with limited savings or imperfect credit.
Conventional loans through Fannie Mae (HomeReady) and Freddie Mac (Home Possible) go as low as 3% down. These programs target buyers earning at or below 80% of area median income. PMI on conventional loans cancels automatically at 80% LTV — a significant advantage over FHA's permanent MIP. If you have 620+ credit and qualify income-wise, these beat FHA in most cases.
VA loans offer 0% down for eligible veterans, active-duty service members, and surviving spouses. No PMI, no down payment, and often the lowest rates available. VA loans do charge a funding fee (1.25–3.3% of the loan, which can be rolled into the loan), but this is waived for veterans with service-connected disabilities. If you're eligible, VA is almost always the best option.
USDA loans offer 0% down in qualifying rural and suburban areas — and "rural" is more broadly defined than you'd think. Many suburbs and small cities qualify. Income limits apply (115% of area median), and there's a 1% upfront guarantee fee plus 0.35% annual fee. Check the USDA eligibility map — you might be surprised what qualifies.
Every state has a housing finance agency (HFA) that offers below-market-rate mortgages and down payment assistance to qualifying buyers. Most programs target first-time buyers with income below 115–150% of area median income. Some are grants (free money), others are forgivable loans or deferred second mortgages.
The types of assistance vary: outright grants that never need to be repaid ($2,000–$10,000), forgivable loans that are forgiven after 5–10 years of occupancy, deferred second mortgages with 0% interest that are due only when you sell or refinance, and low-interest repayable second mortgages.
Most state programs can be combined with FHA, VA, or conventional first mortgages. So you could use an FHA loan with 3.5% down and a state grant to cover that 3.5%. Total out-of-pocket for the down payment: close to zero.
Florida's Hometown Heroes program offers up to 5% as a 0% interest deferred loan — one of the most generous in the country. Texas offers up to 5% as a forgivable grant through the My First Texas Home program. California's Dream For All provides up to 20% as a shared appreciation loan (you repay the assistance plus a share of appreciation when you sell).
Louisiana's Resilience Soft Second offers up to $55,000 in forgivable assistance — the highest dollar amount of any state program. Massachusetts provides up to $50,000 through MassHousing DPA loans. These aren't small numbers — they can genuinely make homeownership possible for families who thought it was out of reach.
How to find your state's programs: visit your state housing finance agency website (we list them all on our state pages), call a HUD-approved housing counselor (free), or ask your lender — many are approved to originate state DPA loans directly.
The application process typically works like this: complete a homebuyer education course (usually 4–8 hours, available online), get pre-approved with a participating lender, find a home within the program's price limits, and apply for the DPA through your lender. Most programs can be processed simultaneously with your mortgage application, adding little extra time to the closing process.
Pro tip: many programs can be combined. A state DPA grant can cover your FHA 3.5% down payment, and the seller can pay closing costs. This means you could buy a home with nearly zero out of pocket — though you'll have a higher monthly payment.
Example scenario: $250,000 home in Florida. Use FHA financing (3.5% down = $8,750). Apply the Hometown Heroes 5% DPA ($12,500) — this more than covers your down payment. Negotiate 3% seller concessions for closing costs ($7,500). Your out-of-pocket cost at closing could be under $1,000. Your monthly payment will be higher due to MIP, but you're a homeowner with minimal upfront investment.
One important note: stacking too many programs can result in a monthly payment that stretches your budget. Always calculate the all-in monthly cost — including the terms of any second mortgages — before committing. Being house-poor defeats the purpose of these programs.