How I did it: Bought a home without a 20 percent down payment

June 29, 2023

In many instances, having to put a 20 percent down payment on a home can scare away prospective buyers. Learn about alternative strategies that can make homebuying a financial reality.

Like many renters, Austin Grieb and his wife wanted a place of their own—a home they could make theirs and a property that would garner them some equity. However, even as they began house shopping, Austin knew that they wouldn’t have 20% to put down on a home purchase.

“It’s interesting because I’ve always been told you have to have 20% for a down payment,” says Grieb, an Elavon employee “I just started looking into our options and realized that wasn’t the case.”

The couple purchased a home in Augusta, Ga. with a 10% down payment. Under the terms of their mortgage, they were able to do so with the understanding that private mortgage insurance (PMI) would also need to be in place, which increases their monthly mortgage payment.

For first-time homebuyers, the 20% down payment is often a perceived hurdle to homeownership, but it doesn’t have to be. There are multiple ways to purchase a home with a smaller down payment using PMI, mortgage programs specific to first-time homebuyers, and grants.

 

Using PMI to work in your benefit

Six in 10 Americans believe that you must put at least 20% down to buy a home, according to a recent survey. However, in today’s market, that’s a misconception.

If you’re applying for a conventional mortgage with less than 20% down, your lender may require that you purchase private mortgage insurance. Typically, most homebuyers wrap the premium for the insurance into their monthly mortgage payment. It’s important to know that PMI protects the lender from missing payments on your mortgage—if you fall behind on payments, you could still end up in foreclosure.

For Austin and his wife, PMI added about another $150 to each mortgage payment. When applicable under the PMI Cancellation Act, your lender is required to automatically drop your PMI once your mortgage balance reaches 78% of the original value of your home.1

 

Down payment alternatives

While mortgage insurance is common, it’s not the only tool for first-time homebuyers considering how much to put down. Jennifer Wendt, a U.S. Bank employee in Minneapolis, worked with a mortgage loan originator from U.S. Bank who specialized in first-time homebuyers.

She qualified for a loan that allowed her to put down 5% on her condo without adding PMI to her payment. In addition, the loan provided some down payment assistance. In return, Jennifer attended a class for first-time homebuyers regarding financing and paying for your house as well as lessons in homeownership tips.

“I think if you’re considering buying, it’s important to talk to somebody who can outline all your options,” she says. There are myriad of programs available, and the assistance ranges from grants with zero interest, forgivable loans to low-interest loans.

Down payment assistance is typically aimed at first-time buyers, but not always. If you’re purchasing a second home, be sure to ask your lender about any available assistance resources. Those that qualify for such programs usually meet an income requirement, buy a home in a designated location or region, and/or keep their purchase under a maximum amount.

 

Down payment planning

Whether you opt for PMI or investigate assistance programs, spend some time considering ways you can contribute to a down payment and how your home purchase fits into your broader financial picture. For instance, before buying their first home, Jessica Oliver, a U.S. Bank employee in Minneapolis, first cut back her household expenses.

Jessica and her husband ended up putting 10% down on their Minneapolis-area home about two years ago, using PMI as part of their loan. The couple sold furniture they no longer needed and minimized their spending habits to save money for their monthly payment. Thanks to their frugality, they’re able to pay an extra $200 a month towards their mortgage bill.

They are also considering refinancing to eliminate the mortgage insurance. For Jessica, the decision to buy made good financial sense. “Even with PMI, we were still paying more for our rent than we are for our mortgage,” she says.

 

Risks to consider

The ability to put 20% down provides homeowners with instant equity in their house. Buyers that put down less risk owing more on their home than it is worth if the market takes a steep downturn like it did in the previous recession.

With that in mind, thinking about how long you plan to stay in your home is essential. “You want to make sure you’re buying a place that you’re willing to stay long term because it could take longer for your investment to become profitable,” Jennifer says.

For potential homebuyers, it’s important to remember that there are alternatives to large down payments. Even if you don’t have a sizeable amount of cash to put toward a home, you may still be able to buy a place of your own.

 

If homeownership seems right for you, check out our first-time homebuyer’s guide for more tips to help you get there. Or, talk to a mortgage loan officer in your area, they’ll help you get started.

 

1If payments are current and in good standing, lenders are required to drop PMI once balances reach 78% of the original home value, according to the PMI Cancellation Act.

Related content

6 tips for trust fund distribution to beneficiaries

Preparing for retirement: 8 steps to take

How to build wealth at any age

How to manage your money: 7 tips to improve your finances

LGBTQ+ financial planning tips

Investment strategies by age

Should I itemize my taxes?

Your 5-step guide to financial planning

6 things to know about long-term care insurance cost and benefits

Is your employer long term disability insurance enough?

What is Medicare? Understanding your coverage options

6 questions to ask before buying a new home

8 steps to take before you buy a home

Military homeownership: Your guide to resources, financing and more

What is refinancing a mortgage?

Are professional movers worth the cost?

What to know when buying a home with your significant other

Building a dream home that fits your life

Mortgage basics: How does your credit score impact the homebuying experience?

Mortgage basics: 3 key steps in the homebuying process

Mortgage basics: How much house can you afford?

Mortgage basics: Buying or renting – What’s right for you?

Mortgage basics: Prequalification or pre-approval – What do I need?

How you can take advantage of low mortgage rates

Mortgage basics: Finding the right home loan for you

Home buying myths: Realities of owning a home

Mortgage basics: What is refinancing, and is it right for you?

Certificates of deposit: How they work to grow your money

5 financial goals for the new year

Retirement savings by age

Annual insurance policy review checklist

Allowance basics for parents and kids

A checklist for starting a mobility program review

Tips for realtors to help clients get their homeownership goals back on track

How I did it: Turned my side hustle into a full-time job

Retirement plan options for the self-employed

Rebuilding finances after a natural disaster

5 reasons why couples may have separate bank accounts

It's possible: 7 tips for breaking the spending cycle

Closing on a house checklist for buyers

How to plan and save for adoption and in vitro fertility treatment costs

Healthcare costs in retirement: Are you prepared?

Multiple accounts can make it easier to follow a monthly budget

Is it time to get a shared bank account with your partner?

Don’t underestimate the importance of balancing your checking account

7 steps to keep your personal and business finances separate

Which is better: Combining bank accounts before marriage — or after?

30-day adulting challenge: Financial wellness tasks to complete in a month

Estate planning checklist: 8 steps to secure your legacy

8 steps to choosing a health insurance plan

Key milestone ages as you near and start retirement

How to build a financial plan that covers your savings and expenses

How I did it: Bought a home without a 20 percent down payment

How I did it: Switched career paths by taking an unexpected pivot

5 ways to maximize your garage sale profits 

What is a home equity line of credit (HELOC) and what can it be used for?

Estate planning documents: Living trusts vs. will vs. living will

Why estate planning is important

How a Health Savings Account (HSA) can benefit your retirement plan

Year-end financial checklist

Housing market trends and relocation impact

Finance or operating lease? Deciphering the legalese of equipment finance

Buying or leasing? Questions to ask before signing a contract

Insource or outsource? 10 considerations

The secret to successful service provider integration

Avoiding the pitfalls of warehouse lending

Safeguarding the payment experience through contactless

COVID-19 safety recommendations: Are you ready to reopen?

Unexpected cost savings may be hiding in your payment strategy

Changes in credit reporting and what it means for homebuyers

What’s the difference between Fannie Mae and Freddie Mac?

Why other lenders may be reaching out to your employees

High-cost housing and down payment options in relocation

Crypto + Relo: Mobility industry impacts

For today's relocating home buyers, time and money are everything

How to sell your business without emotions getting in the way

5 steps to take before transitioning your business

10 tips on how to run a successful family business

Talent acquisition 101: Building a small business dream team

Costs to consider when starting a business

How to test new business ideas

The costs of hiring a new employee

How to expand your business: Does a new location make sense?

How to build a content team

Multigenerational household financial planning strategies

Do I need a financial advisor?

How to track expenses

How to manage your finances when you're self-employed

Good debt vs. bad debt: Know the difference

Good money habits: 6 common money mistakes to avoid

7 beneficiary designation mistakes to avoid

Reviewing your beneficiaries: A 5-step guide

How to talk about money with your family

Financial steps to take after the death of a spouse

Retirement advice: How to retire happy

Retirement income planning: 4 steps to take

Preparing for retirement: 8 steps to take

Comparing term vs. permanent life insurance

How much life insurance do I need?

Working after retirement: Factors to consider

4 steps to finding a charity to support

Year end tax planning tips

Tips for navigating a medical hardship when you’re unable to work

11 essential things to do before baby comes

Webinar: Uncover the cost: Starting a family

Preparing for adoption and IVF

Checklist: 10 questions to ask your home inspector

Resources for managing financial matters after an unexpected death

What you need to know as the executor of an estate

What documents do you need after a loved one dies?

Checklist: financial recovery after a natural disaster

How does money influence your planning?

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

5 things to know before accepting a first job offer

How I did it: Paid off student loans

Bank Notes: College cost comparison

From LLC to S-corp: Choosing a small business entity

Recognize. React. Report. Caregivers can help protect against financial exploitation

Is online banking safe?

What to do with your tax refund or bonus

Pros and cons of a personal line credit

3 tips for saving money when moving to a new home

Is raising backyard chickens a good idea financially?

5 tips for creating (and sticking to) a holiday budget

5 things to consider when deciding to take an unplanned trip

Stay committed to your goals by creating positive habits

Growing your savings by going on a ‘money hunt’

Working with an accountability partner can help you reach your goals

Does your savings plan match your lifestyle?

Uncover the cost: Wedding

Uncover the cost: International trip

Are savings bonds still a thing?

Tips to overcome three common savings hurdles

Adulting 101: How to make a budget plan

Personal loans first-timer's guide: 7 questions to ask

3 awkward situations Zelle can help avoid

Mindset Matters: How to practice mindful spending

How can I help my student manage money?

You can take these 18 budgeting tips straight to the bank

Save time and money with automatic bill pay

Do you and your fiancé have compatible financial goals?

U.S. Bank asks: Transitioning out of college life? What’s next?

U.S. Bank asks: Do you know your finances?

Personal finance for teens can empower your child

How to save for a wedding

Here’s how to create a budget for yourself

9 simple ways to save

Dear Money Mentor: How do I set and track financial goals?

Lost job finance tips: What to do when you lose your job

Money Moments: 3 smart financial strategies when caring for aging parents

Money management guide to financial independence

Money Moments: 8 dos and don’ts for saving money in your 30s

7 financial questions to consider when changing jobs

Travel for less: Smart (not cheap) ways to spend less on your next trip

What’s in your emergency fund?

What you need to know about renting

How to stop living paycheck to paycheck post-pay increase

Understanding guardianship and power of attorney in banking

Bank from home with these digital features

What financial advice would you give your younger self?

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Using 529 plans for K-12 tuition

Parent checklist: Preparing for college

What to consider before taking out a student loan

How to use debt to build wealth

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Know your debt-to-income ratio

Your quick guide to loans and obtaining credit

Checklist: 10 things to look for when touring a home

Overcoming high interest rates: Getting your homeownership goals back on track

Is it cheaper to build or buy a house

For today's homebuyers, time and money are everything

Crypto + Homebuying: Impacts on the real estate market

Should you buy a house that’s still under construction?

How I did it: Bought my dream home using equity

Buying a home Q&A: What made three homeowners fall in love with their new home

House Hacks: How buying an investment property worked as my first home

Managing the impacts of appraisal gaps in a hot housing market

How I did it: Built living spaces to support my family

Spring cleaning checklist for your home: 5 budget-boosting tasks

Saving for a down payment: Where should I keep my money?

Your guide to breaking the rental cycle

Checklist: 6 to-dos for after a move

What are conforming loan limits and why are they increasing

Uncover the cost: Building a home

The lowdown on 6 myths about buying a home

4 ways to free up your budget (and your life) with a smaller home

Get more home for your money with these tips

Money Moments: Tips for selling your home

Money Moments: How to finance a home addition

How I did it: My house remodel

First-time homebuyer’s guide to getting a mortgage

Dear Money Mentor: When should I refinance a mortgage?

Beyond the mortgage: Other costs for homeowners

10 ways to increase your home’s curb appeal

10 questions to ask when hiring a contractor

5 things to avoid that can devalue your home

What is an escrow account? Do I have one?

Is it the right time to refinance your mortgage?

These small home improvement projects offer big returns on investment

Should you get a home equity loan or a home equity line of credit?

Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Is a home equity line of credit (HELOC) right for you?

How to use your home equity to finance home improvements

How do I prequalify for a mortgage?

Home equity: Small ways to improve the value of your home

Can you take advantage of the dead equity in your home?

4 questions to ask before you buy an investment property

10 uses for a home equity loan

6 essential credit report terms to know

Test your loan savvy

Credit: Do you understand it?

What types of credit scores qualify for a mortgage?

Car shopping: Buying versus leasing your next vehicle

Take the stress out of buying your teen a car

Questions to ask before buying a car

What you should know about buying a car

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.