How Much Do I Need for a Down Payment?

For most buyers in East Tennessee, the down payment is 3% to 3.5% of the home's price — not 20%. On a ~$400K example home, 3% is $12,000 and 3.5% is $14,000. Some buyers qualify for 0% down. The 20% figure is a leftover from another era: it's the threshold for skipping mortgage insurance on a conventional loan, not a requirement to buy. Here's what the real minimums are by loan type, what PMI actually costs, and what else you need saved before you make an offer.

What Is the Real Minimum Down Payment on a House?

Most buyers put down 3% to 3.5% of the purchase price. Conventional loans go as low as 3% down for qualifying buyers, FHA loans go to 3.5% down, and VA and USDA loans require 0% down for eligible buyers. You only need 20% if you want to avoid private mortgage insurance on a conventional loan — and even then, PMI is temporary and cancelable.

The single most expensive myth in homebuying is the 20% myth. Every month a buyer waits to save 20% while already able to qualify, they're paying someone else's mortgage in rent. (For context, Freddie Mac's weekly survey put the average 30-year fixed rate at 7.03% as of September 24, 2026.)

How Much Down Payment Does Each Loan Type Require?

Here's the side-by-side so you can see exactly where you fit:

Put those percentages on a ~$400K example home so the numbers feel real:

• 3% down = $12,000
• 3.5% down = $14,000
• 5% down = $20,000
• 10% down = $40,000
• 20% down = $80,000

The gap between 3.5% and 20% on that example: $66,000 — years of saving you don't have to do if you qualify with less.

FHA note: 3.5% down requires a 580 score; 500–579 needs 10% down. (More in our credit-score guide.)

What Is PMI and What Does It Really Cost?

PMI — private mortgage insurance — protects the lender, not you. On a conventional loan with less than 20% down, your lender requires it. That's the whole story. It isn't a penalty, and it isn't forever.

What it costs: PMI typically runs 0.5% to 1% of the loan amount per year for most borrowers, with published ranges spanning roughly 0.3% to 1.5% depending on credit and down payment. Your exact figure must appear on your Loan Estimate before closing — no surprises.

How long it lasts: This is the part most people get wrong. PMI is cancelable. Under the federal Homeowners Protection Act, you can request cancellation once your loan balance is scheduled to hit 80% of the home's original value, and your lender must cancel it automatically at 78% as long as you're current on payments.

Think of PMI as a bridge, not a burden: a few years of modest PMI almost always costs less than a few years of rent plus the appreciation you missed while saving.

One contrast worth knowing: FHA loans use their own version called MIP, and the annual MIP generally lasts for the life of the loan if you put down less than 10%. That's a real cost difference to discuss with a lender when choosing between FHA and conventional.

Is There Down Payment Assistance Available?

Yes — and it's worth asking about. Assistance generally comes as grants that don't have to be repaid, or second loans with deferred or low payments behind your main mortgage. Programs are offered by states, cities, counties, nonprofits, and some employers, and eligibility usually depends on income limits, first-time-buyer status, the property's location, and your loan type.

Two honest caveats. Programs change, so this is a question for a local lender — not a blog post. And assistance has rules: income caps, homebuyer education, and property requirements are common. A good lender checks your eligibility in minutes during pre-approval. If anyone promises a specific program or dollar amount without seeing your full financial picture, be skeptical.

What Do You Actually Need Saved Beyond the Down Payment?

The down payment gets the headlines, but it's not the whole check you write. Budget for these too:

• Closing costs. On top of the down payment: lender fees, title work, prepaid property taxes, and prepaid homeowners insurance. Your Loan Estimate itemizes every line — review it like a hawk.
• Earnest money. The good-faith deposit with your offer. It usually gets credited toward your down payment or closing costs, but you need it liquid up front.
• Reserves. Lenders like seeing money left in the bank after closing — and you'll sleep better.
• Moving and setup. Movers, utility deposits, immediate repairs. Death-by-a-thousand-cuts money.
• A pre-approval. It tells you your real budget before you fall in love with a house. Step one, not step five.

Rule of thumb: if you can cover the minimum down payment plus closing costs and still have reserves left, you're in a strong position to buy — even if 20% down is nowhere in sight.

Should You Put Down More Than the Minimum?

Sometimes yes, sometimes no. It depends on your whole picture, not a rule of thumb.

Reasons to put down more: a smaller loan means a smaller monthly payment and less PMI (or none at all). If you have the cash and still keep healthy reserves, more down is simple and safe.

Reasons to keep your cash: an emergency fund, upcoming repairs, or higher-interest debt. Cash in the bank is flexibility — and can matter more than shaving a few dollars off the monthly payment.

Here's the local angle: with mortgage rates averaging 7.03% in late September 2026, your credit score moves your rate and PMI cost far more than an extra percent or two of down payment does. Before stretching to a bigger down payment, get your credit in the best shape it can be — that's where the real savings hide.

Frequently Asked Questions

Is 20% down still the smartest move?

Not automatically. If you have the cash and keep solid reserves, yes — you skip PMI and borrow less. But if 20% means draining your emergency fund or waiting three more years, 3% to 5% down with cancelable PMI is often the smarter move. Run both scenarios with a lender.

Can I buy a house with no money down?

It's possible but rare in the true "zero out of pocket" sense. VA and USDA loans require 0% down for eligible buyers — but you'll still have closing costs and earnest money. Anyone telling you buying takes literally no money is skipping the fine print.

Does a bigger down payment get me a better interest rate?

Only slightly. Your credit score, loan type, and the broader rate market drive the number far more. Going from 3% to 10% down won't transform your rate — but going from a 660 to a 740 credit score might.

How much should I have saved before house hunting in East Tennessee?

Enough to cover your loan type's minimum down payment, plus closing costs, plus a cushion of reserves. Get pre-approved first — a local lender will give you your exact number in one conversation, and it costs nothing.

If I can't afford 20% down, should I wait and keep saving?

Usually no — if you qualify now. Every year you wait to save the gap between 3.5% and 20%, you're paying rent and missing appreciation and principal paydown. The exception: if your credit needs work or you'd have zero reserves after closing, a few months of preparation beats rushing in.

Ready to find out what you'd actually qualify for? At Your Home Sold Guaranteed Realty – Kings of Real Estate, we help East Tennessee buyers in Knoxville, Sevierville, Maryville, Johnson City, and Farragut map out a real plan with our proven system. Reach out for a free buyer consult — we'll walk through your down payment options, connect you with a trusted local lender, and tell you honestly whether now is your time to buy.

— Tannor Giles, Your Home Sold Guaranteed Realty – Kings of Real Estate

Source links

• https://www.freddiemac.com/pmms
• https://www.usatoday.com/story/money/money-management/real-estate/2026/09/18/how-to-get-a-mortgage-with-bad-credit/91293030007/
• https://fistarr.com/blog/mortgage-readiness/minimum-credit-score-by-mortgage-type
• https://www.supermoney.com/conventional-loan-pmi-explained
• https://www.fastexpert.com/blog/private-mortgage-insurance-everything-you-need-to-know/

Keep reading: What Credit Score Do I Need to Buy a House? · Can I Buy a House With Student Loans? · Is Now a Bad Time to Buy a House?

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