Down payments, PMI & what you can actually afford

Ask anyone how much you need to buy a house and they'll say the same thing: "20% down." On a $300,000 home, that's $60,000 in cash — a number so big that many people conclude homeownership isn't for them and stop thinking about it. Here's the thing: the 20% rule isn't a rule. Most first-time buyers put down far less. Below: what you actually need, the fee you pay for putting down less (PMI), the closing costs nobody warns you about, and — most importantly — how to figure out what you can afford, instead of letting a bank decide.

The 20% myth vs. reality

A down payment is the chunk of the price you pay in cash up front; a mortgage covers the rest. Twenty percent matters for one specific reason we'll get to (PMI), but it is not the minimum. As of 2025, typical minimums look like this:

The median first-time buyer in the U.S. typically puts down around 8–9% — nowhere near 20%. So why does everyone repeat the 20% number?

PMI: the fee for putting down less

If you put down less than 20% on a conventional loan, the lender makes you buy PMI (private mortgage insurance). Be clear about what this is: insurance that protects the lender (not you) if you stop paying. You pay the premium; they get the protection.

• Typical cost: about 0.3% to 1.5% of the loan amount per year, added to your monthly payment. Your credit score and down payment size determine where you land in that range.
• It's temporary. On a conventional loan, you can request PMI removal once you owe 80% or less of the home's value (your loan-to-value ratio, or LTV), and the lender must cancel it automatically at 78% LTV. That usually takes several years of payments — or one decent rise in home prices plus an appraisal.

Closing costs: the bill nobody mentions

The down payment isn't the only cash you need. Closing costs — the fees to actually complete the purchase — typically run 2–5% of the purchase price. On a $300,000 home, that's $6,000 to $15,000, on top of your down payment. They include things like:

• Lender fees — loan origination, underwriting, application (often 0.5–1% of the loan)
• Appraisal (typically $400–$700) and home inspection ($300–$600)
• Title search and title insurance — proving the seller actually owns the house, and insuring against surprises
• Prepaid items — your first chunk of property taxes and homeowners insurance, plus interest for the days between closing and your first payment
• Government recording fees and transfer taxes — vary a lot by state

So a 5%-down buyer of a $300,000 home realistically needs $21,000–$30,000 in cash ($15,000 down plus closing costs), not $15,000. Plan for it. We'll show you how to compare and negotiate these fees in the buying process lesson.

What you can ACTUALLY afford: the 28/36 rule

When a bank pre-approves you for a loan amount, that number answers one question: "What's the most we're willing to lend before the risk gets uncomfortable for us?" It is a ceiling, not a target. The bank doesn't know you want to travel, have a kid, or not eat rice for 30 years.

A better starting point is the classic 28/36 rule:

• Your total housing cost (mortgage payment + property taxes + homeowners insurance + PMI) should stay at or under 28% of your gross monthly income.
• Your total debt payments (housing + car loan + student loans + credit card minimums) should stay at or under 36%. Lenders call this your debt-to-income ratio — the same DTI from the borrowing track.