Down Payment Myths: You May Not Need 20% to Buy a Home

For many prospective homebuyers, one belief often stands in the way of getting started: the idea that you need a 20% down payment to buy a home. 

While putting 20% down can reduce some costs, it is not the only path to homeownership. In fact, many first-time buyers qualify for loan options and assistance programs that require far less upfront and, in some cases, little to no money out of pocket. Understanding what is fact, what is outdated advice, and what resources are available can help more people move toward homeownership with confidence.

At Verity, we believe access more important than perfection. We spoke with our Community Financial Education Specialist about common down payment myths, what buyers should understand before waiting too long, and how assistance programs may help make homeownership more achievable.  

Where did the 20% down payment idea come from?

The 20% benchmark became common because, from a lender’s perspective, it creates a financial cushion. If a borrower defaults and a home must be sold, that equity helps protect the lender if the property sells for less than expected. That does not mean 20% is required for every buyer. Today, many mortgage programs allow qualified buyers to purchase a home with much lower down payments, often between 3% and 5%, depending on the loan type and eligibility.

What happens if you put down less than 20%?

If you put down less than 20% on a conventional loan, you will typically pay Private Mortgage Insurance (PMI). PMI protects the lender, not the borrower, in the event of default. It is usually added to your monthly mortgage payment. The good news is PMI is not permanent. Once your loan balance reaches 80% of your home’s value through payments or appreciation, meaning you have 20% equity, you can usually request to have PMI removed.

Is it better to wait until you save 20%?

Waiting to save a larger down payment can feel like the safer choice, but in a rising housing market, waiting may also mean paying more later. For example, imagine you are considering a $450,000 home today. You have $15,750 saved, which equals 3.5%, but you are thinking about waiting until you save $90,000, which is a 20% down payment. Should you buy now or wait until you’ve saved the full $90,000? Let’s explore each scenario: 

Scenario A: Buy now with 3.5% down

• Home price: $450,000
• Monthly PMI: Approximately $180 (estimate based on a 720 credit score)
• Estimated home value after two years at 3% annual appreciation: $477,405

Over two years, that creates $27,405 in equity growth. Even after paying approximately $4,320 in PMI, the estimated net gain is $23,085 in wealth.

Scenario B: Wait two years to save 20% (Assuming home values increase at the same pace, 3% annually):

• Home price after two years: $477,405
• New 20% down payment target: $95,481

That means your savings goal increases while home prices continue to rise. In that same period, rent payments do not build equity, and the home costs more than it did when you started. The key takeaway is that in some situations, entering the market sooner with a smaller down payment may build wealth faster than waiting for perfection.

Assistance programs can lower the barrier even more

Many buyers assume down payment assistance is only for very low-income households, but several programs are designed to help moderate-income families as well. One example is Washington State’s Covenant Homeownership Program (CHP), which helps eligible first-time homebuyers, who have family history in Washington before 1968 cover down payment and closing costs.

For households earning up to 120% of Area Median Income, current limits include:

• King and Snohomish counties: $188,500
• Pierce County: $144,950
• Thurston County: $140,050

This means many working households who may not consider themselves low-income could still qualify.

What is the Covenant Homeownership Program?

The Covenant Homeownership Program is a first-of-its-kind initiative created to address the racial homeownership gap and barriers to homeownership that generations of families in Washington State. It provides a 0% interest loan of up to 20% of the home’s purchase price, capped at $150,000, plus eligible closing costs for qualified first-time homebuyers. The $150,000 limit applies to the down payment portion; additional support may be available for closing costs.

The program was established through Covenant Homeownership Act (HB 1474), passed in 2023, in response to documented racial housing discrimination in Washington. University researchers documented more than 50,000 racially restrictive covenants across Washington that explicitly barred Black, Latino, Indigenous, and Asian families from buying homes between the 1920s and 1960s. The program is self-funded through a $100 document recording fee charged on real estate transactions statewide.

Who may qualify? 

To qualify, buyers must generally meet all of the following:

• Be a first-time homebuyer (no homeownership within the past three years)
• Meet county income limits
• Have family roots in Washington State before April 11, 1968
• Have a parent, grandparent, or great-grandparent who identified as Black, Hispanic/Latino, Indigenous, Korean, or Asian Indian

Additional things to know about CHP

This assistance is structured as a deferred-payment loan, which means:

• No monthly payments
• 0% interest
• Repayment occurs when the home is sold or refinanced

New for 2026: Loan forgiveness

Some borrowers at or below 80% of Area Median Income who remain in the home for at least five years may qualify for full loan forgiveness under updated program rules. Even when a buyer qualifies for 0% down, it is still wise to keep some savings available for move-in costs, repairs, and emergencies. That cushion stays in your pocket rather than going directly into the house.

Real-life example of using CHP

To show how these programs work in practice, let’s look at a recent home purchase modeled for a first-time buyer in our community.

• Purchase Price: $685,000
• Financing Strategy: Conventional Financing was used because it allows the CHP to cover the full 20% down payment. By reaching 20% equity on day one, the buyer pays $0 in PMI, saving them hundreds of dollars each month.

Note: While conventional financing was the best fit here, FHA financing may also be an option for buyers who may need more flexibility with credit or debt-to-income ratios.

• Down payment assistance (DPA) amount: $157,285 total assistance through CHP, structured as a silent second mortgage covering:
  • Down payment (20%): $137,000    
  • Closing costs: $20,285 (including taxes, title, and escrow fees).
• Result: The buyer purchased a nearly $700,000 home with $0 down and $0 closing costs out of pocket.

Other down payment assistance programs to explore

While the Covenant Homeownership Program is a game-changer, it is just one of several programs that may help buyers bridge the gap to homeownership. Depending on your background, location, or profession, you may qualify for one of these other programs:

• Home Advantage: A statewide program for moderate-income buyers
• House Key Opportunity: Lower interest rates for qualifying, lower-income first-time buyers
• Habitat for Humanity: Affordable homeownership paired with "sweat equity."
• Parkview Services: Specialized support for first-time buyers with disabilities
• Dream to Keys: A unique pathway for King County housing voucher (Section 8) recipients, for use toward a mortgage
• Family Self-Sufficiency: For Pierce County housing voucher recipients

Because down payment programs are constantly evolving, connecting with Verity’s mortgage team can help you identify which options may best fit your situation.

Homeownership may be closer than you think

Saving for a home is important, but waiting until every condition feels perfect can sometimes delay opportunities that already exist today. Understanding available programs, loan options, and what lenders actually require can help you make informed decisions about when to begin. 

Get Mortgage-Ready with Verity

Whether you’re planning to buy this year or just starting to think about it, understanding down payment options is a key step. Verity’s Financial Wellness and Mortgage teams are here to help you prepare with confidence — on your timeline.

Interested in learning more? Connect with a Verity Community Financial Education Specialist or explore our financial education workshops at Pathways to Wealth & Resources (PWR) | Verity Credit Union.

_{Disclosure: This article is for educational purposes only. Loan terms, program availability, assistance amounts, and eligibility requirements vary and may change. Examples shown are illustrative and individual results will differ.}