You Don’t Need 20% Down to Buy a Home—You Can Do It with 3–5%

The 20% Myth: Why It’s Outdated

For decades, homebuyers were told they needed to save 20% of the home’s price as a down payment. For many families, that meant waiting years—sometimes a decade—before they could even think about buying. But in 2025, this rule of thumb is largely outdated.

Mortgage expert Julie P. Tuggle explains that today, many buyers are entering the market with just 3–5% down, thanks to programs like FHA, VA, USDA, and conventional low-down-payment mortgages.

This shift is crucial at a time when affordability is stretched by rising home prices and higher interest rates.

---

FHA Loans: The Classic 3.5% Option

The Federal Housing Administration (FHA) offers mortgages requiring only a 3.5% down payment. For a $300,000 home, that’s just $10,500 upfront, compared to $60,000 if sticking to the 20% myth.

FHA loans are especially popular with first-time buyers, offering more flexible credit score requirements and competitive rates. The trade-off is mortgage insurance premiums, but for many, the lower barrier to entry outweighs the extra cost.

---

VA & USDA Loans: 0% Down for Eligible Borrowers

• VA Loans: For veterans, active-duty service members, and certain military spouses, VA loans require no down payment at all. They also waive mortgage insurance, making them one of the most affordable mortgage products available.
• USDA Loans: For buyers in rural and semi-rural areas, USDA loans also provide a 0% down option, making homeownership possible in communities where incomes may be modest but housing costs are rising.

Both programs have been growing in uptake, especially as awareness spreads beyond traditional borrower groups.

---

Conventional 3% Down Programs

Even conventional lenders are getting more flexible. Giants like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow down payments as low as 3% for qualifying buyers.

These programs are designed for borrowers with stable income but limited savings—making them perfect for younger professionals or families who can afford a monthly mortgage but can’t stash away tens of thousands for a deposit.

---

Real-Life Example

Consider Ravi and Meera, a young couple in Toronto eyeing a $450,000 starter home. Believing the 20% myth, they thought they needed $90,000 saved before applying. After meeting with a broker, they learned they could qualify with just $15,000 down (3.3%) under a first-time buyer program.

Instead of waiting another 7–8 years to save more, they entered the market in 2025—locking in a home while building equity instead of paying rent.

---

Why the Myth Still Persists

• Conservative Advice: Some advisors still promote 20% as the “safe” number to avoid mortgage insurance.
• Affordability Fears: Buyers worry smaller down payments equal higher monthly costs.
• Generational Beliefs: Parents who bought decades ago often pass along the 20% standard.

Yet experts argue that waiting too long can backfire, especially if home prices rise faster than a household can save.

---

Balancing Risk and Opportunity

Putting down 20% can still be smart if:

• You want to avoid PMI (private mortgage insurance).
• You have a high debt-to-income ratio and want smaller payments.
• You’re planning to stay long-term and value equity stability.

But for millions of households, buying sooner with 3–5% down can be the smarter move, letting them build wealth through home equity instead of chasing a moving target.

---

The housing market in 2025 is about flexibility and access. The 20% myth is giving way to a more practical reality: borrowers have multiple options to step onto the property ladder sooner.

As Julie Tuggle notes, “Delaying homeownership often costs more in the long run than paying a little extra in PMI today.”

---