Why 20% is the magic number
Putting 20% down on a conventional loan lets you avoid private mortgage insurance (PMI), which typically costs 0.5–1% of the loan balance per year — often $100–$300 a month with nothing to show for it once you reach 20% equity. A larger down payment also shrinks your loan, lowering both your monthly payment and the total interest you pay over the life of the loan.
You do not need 20% to buy, however. Conventional loans allow as little as 3% down, FHA loans require 3.5%, and VA and USDA loans can require nothing at all for eligible borrowers. These lower-down-payment paths make homeownership accessible sooner, at the cost of PMI and a larger balance. The right choice depends on how quickly you need to buy versus how much you can save.
Down payment vs. keeping cash in reserve
It can be tempting to drain every account to hit 20%, but lenders and financial planners both caution against leaving yourself with no cushion. After closing you should still hold three to six months of mortgage payments in liquid savings, plus a fund for immediate repairs and furnishings. A slightly smaller down payment with a healthy emergency fund is usually safer than a larger one that leaves you house-rich and cash-poor.
Also account for closing costs, which run 2–5% of the purchase price and are separate from the down payment. On a $350,000 home, that is another $7,000–$17,500 due at signing. Knowing both figures in advance prevents unpleasant surprises late in the process.