🔑 Buying
You Don't Need 20% Down: Low Down Payment Options for First-Time Buyers
The 20% rule is one of the most persistent myths in homebuying, and it stops good buyers from even starting the conversation. Here's what you actually need to put down, and where to find help if you don't have it.
I hear some version of this constantly from first-time buyers: "We're not even looking yet, we don't have 20% saved." I understand where the number comes from, it's the one everyone's heard their whole life. But for most first-time buyers, it's simply not the requirement, and waiting years to hit it often costs more than it saves. Here's what your actual options look like.
Where the 20% myth comes from
Twenty percent down avoids private mortgage insurance (PMI) on a conventional loan, and it's the number a lot of financial advice defaults to because it's simple. But PMI isn't a penalty, it's a cost that lets you buy sooner, and for most first-time buyers, buying sooner and building equity while the market moves beats waiting years to save an extra 15%. The math almost always favors getting in the door.
3% down: the conventional low-down-payment option
If you're a first-time buyer, put this at the top of your list: you can put down as little as 3% on a conventional loan, and you don't have to fit into an income-restricted box to get there.
There are two paths to that 3% number, and it's worth knowing both exist:
**Fannie Mae 97% LTV and Freddie Mac HomeOne** are standard conventional programs open to first-time buyers with no income limit at all. If your credit and debt-to-income qualify, your household income doesn't factor into eligibility. This is usually the first option I look at for a first-time buyer who's otherwise a strong conventional borrower.
**HomeReady (Fannie Mae) and Home Possible (Freddie Mac)** also allow 3% down, and they're worth asking about specifically because they can come with reduced PMI costs and more flexibility on where your down payment funds come from. The tradeoff is an income limit tied to the area median income for the property's location, so they fit some buyers and not others.
A few things that apply either way:
- You'll pay PMI, which drops off once you hit 20% equity, either through payments or appreciation
- Credit score requirements are generally higher than FHA, usually 620 or above
- The down payment can come from savings, a gift from family, or in many cases, down payment assistance programs
On a $400,000 home, 3% down is $12,000, compared to $80,000 for 20%. That's the difference between buying this year and buying in five years for a lot of households. And since income limits only apply to one of the two paths, don't assume you're priced out of the 3% conversation before you actually ask.
3.5% down: FHA loans
FHA loans remain one of the most accessible paths to homeownership, especially for buyers with credit in the 580-660 range where conventional pricing gets expensive.
- Minimum down payment is 3.5% with a credit score of 580 or above
- Below 580, down to 500, FHA still allows financing but requires 10% down
- FHA mortgage insurance is required regardless of down payment amount, and for most buyers it doesn't cancel until the loan is refinanced or paid off, which is the tradeoff against conventional
- More flexible on debt-to-income ratio and past credit issues than conventional financing
FHA tends to be the right fit for buyers who are still building credit or who have had a bump in their credit history but have stable income and a clean recent track record.
Zero down: VA and USDA loans
If you qualify for one of these, they're worth serious consideration before anything else.
**VA loans- available to eligible veterans, active-duty service members, and some surviving spouses, allow 100% financing with no down payment and no monthly mortgage insurance. There's a one-time funding fee, which can often be rolled into the loan, but no ongoing MI cost, which is a meaningful monthly savings compared to FHA or low-down conventional.
**USDA loans- also allow 0% down, for eligible rural and suburban properties (the eligible area map is broader than most people expect, a lot of areas just outside Austin proper qualify) and buyers within income limits for the county.
Down payment assistance: the piece most buyers don't know exists
This is the part of the conversation that changes the most minds. Texas has real, well-established down payment assistance programs, and they're not obscure or hard to access.
**TDHCA My First Texas Home**, through the Texas Department of Housing and Community Affairs, offers a 30-year, low fixed-rate mortgage paired with up to 5% of the loan amount in down payment and closing cost assistance for eligible first-time buyers using FHA, VA, or USDA financing. The assistance comes as a no-interest second lien.
**TDHCA My Choice Texas Home** works the same way but isn't limited to first-time buyers, and it also allows conventional financing (Fannie Mae HFA Preferred) alongside FHA, VA, and USDA.
**TSAHC Home Sweet Texas Home Loan Program**, through the Texas State Affordable Housing Corporation, offers up to 5% down payment assistance as either a grant or a second mortgage, usable with conventional, FHA, VA, or USDA loans.
**TSAHC Homes for Texas Heroes** offers similar assistance specifically for teachers, firefighters, police officers, EMS personnel, correctional officers, and veterans.
Most of these programs share a few common threads: a required homebuyer education course (usually a few hours online), income and purchase price limits based on your county, and a minimum credit score, typically 620. They're not free money with no strings, but for an eligible buyer, they can turn a down payment that felt years away into something achievable this year.
What this actually looks like combined
Here's a realistic scenario: a first-time buyer with a 640 credit score, stable income, and $6,000 saved, nowhere near 20% or even 3% on a $350,000 home. Paired with an FHA loan and TDHCA down payment assistance, that buyer can often get to the closing table with little to nothing out of pocket beyond earnest money and inspection costs, assuming they qualify on income and the property meets program requirements.
That combination, low down payment loan plus assistance program, is exactly the kind of scenario that gets missed when someone assumes they need 20% and doesn't even start the conversation.
What to actually do next
- Get a real pre-approval, not a guess. Your actual number depends on your credit, income, and the specific programs you qualify for, not a generic online calculator.
- Ask specifically about down payment assistance eligibility. Don't wait for a lender to bring it up, ask directly whether you qualify for TDHCA, TSAHC, or other local programs.
- Compare the real monthly cost, not just the down payment. A lower down payment loan may carry mortgage insurance; understanding the full monthly picture matters as much as the upfront number.
- Don't rule yourself out before you ask. I've had more than one client assume they weren't ready, only to find out they qualified for a program that got them into a home that same year.
The bottom line
The 20% number keeps a lot of ready buyers on the sidelines longer than they need to be. Between 3% conventional options, FHA, VA, USDA, and Texas's down payment assistance programs, most first-time buyers have a real path with far less saved than they assume. The only way to know your actual number is to sit down and run it.
If you've been holding off because you think you need more saved, let's find out what you actually qualify for. It usually takes one conversation to know.
SV
Written by
Sonya Valia Loan Officer · NMLS #394619
With over 24 years in the mortgage industry, Sonya brings deep experience and a hands-on approach to every loan, with a special talent for first-time buyers and complex self-employed scenarios.