The deposit, called a down payment in the US and Canada, is usually the biggest hurdle to buying a first home. You will often hear that you need 20%. Strictly, you don’t, and many buyers put down far less. But a smaller deposit has costs, and it is only part of the cash you need on settlement day.
This guide explains where the 20% figure comes from, the low-deposit routes available in different countries, how to weigh mortgage insurance against waiting, and the other upfront costs that catch buyers out.
Why 20% became the benchmark
Twenty percent is not a legal minimum in most places. It is the point where lenders usually stop requiring mortgage insurance, because a loan of 80% of the home’s value or less (an 80% loan-to-value ratio, or LTV, called LVR in Australia) leaves the lender a comfortable cushion if prices fall and the home has to be sold.
Putting down 20% or more typically gives you:
- No mortgage insurance, which can add hundreds of dollars a month or a five-figure one-off premium.
- A smaller loan, so lower repayments and less interest over the life of the loan.
- An equity buffer, which makes it easier to refinance or sell without owing more than the home is worth.
- Access to better pricing with some lenders, since lower-LTV loans are lower risk.
You can see where you sit with the LTV calculator, which also shows how much you would need to reach 80%.
Low-deposit options in the US
US buyers have several routes to buying with well under 20% down. The details, credit score requirements and fees change, so treat this as an overview and check current rules with a lender or on consumerfinance.gov.
| Loan type | Typical minimum down | Who it is for | Insurance or fees |
|---|---|---|---|
| Conventional | 3% to 5% | Borrowers with solid credit; 3% programs are often aimed at first-time or moderate-income buyers | Private mortgage insurance (PMI) below 20% down, which can be removed later |
| FHA | 3.5% | Borrowers who meet the credit score minimum; a larger deposit is required with lower scores | Upfront and annual mortgage insurance premiums, which can last for the life of the loan |
| VA | 0% | Eligible veterans, service members and some surviving spouses | No monthly mortgage insurance, but usually a one-off funding fee |
| USDA | 0% | Buyers in eligible rural and some suburban areas, within income limits | Upfront and annual guarantee fees |
Many states and cities also run down payment assistance programs, such as grants or forgivable second loans. Read the conditions, as some must be repaid if you sell or refinance early.
On a conventional loan, you can usually ask the lender to cancel PMI once your balance reaches 80% of the home’s original value, and it is normally cancelled automatically when the balance is scheduled to reach 78%, provided your payments are up to date.
Low-deposit options in Australia, the UK and Canada
Australia. Many lenders accept deposits of 5% to 10%, but above an 80% LVR you will usually pay lenders mortgage insurance (LMI). LMI is typically a one-off premium, and it is often added to the loan. Some lenders waive LMI for certain professions. The federal government’s Home Guarantee Scheme allows eligible buyers to purchase with a deposit as low as 5% (lower for some single parents) without paying LMI, because the government guarantees part of the loan. Eligibility, property price caps and other conditions apply and have changed over time. States also offer first-home grants and transfer duty concessions. Moneysmart is a good place to start.
United Kingdom. Mortgages at 90% and 95% loan-to-value are widely available, so 5% to 10% deposits are common for first-time buyers. There is usually no separate mortgage insurance. Instead, the cost of a small deposit shows up as a higher interest rate: lenders price in bands, and rates generally improve as you move to lower LTV tiers. Government-backed schemes have supported high-LTV lending at times, and accounts such as the Lifetime ISA add a government bonus to savings for a first home, subject to limits. MoneyHelper explains the current options.
Canada. The minimum down payment is set by law and rises in tiers with the price: 5% on the first $500,000 and 10% on the portion above that, with a 20% minimum above a set price cap. Down payments under 20% require mortgage default insurance, whose premium is usually added to the mortgage. The Financial Consumer Agency of Canada publishes the current thresholds.
The real cost of a small deposit
Mortgage insurance protects the lender, not you, but you pay for it. Whether it is worth paying depends on what waiting would cost you instead. Here is a US example with assumed figures.
Worked example: 5% down vs 20% down on a $400,000 home
Both options use a 30-year fixed loan at an assumed 6.5%. PMI is assumed at 0.7% of the loan a year; real quotes depend on your credit score and deposit.
20% down ($80,000): loan $320,000, principal and interest $2,022.62 a month. No PMI.
5% down ($20,000): loan $380,000, principal and interest $2,401.86, plus PMI of $221.67, for a total of $2,623.53 a month.
The smaller deposit costs $600.91 more a month at first.
How long does the PMI last? With regular payments and no change in the home’s value, the balance reaches 80% of the original value ($320,000) after 124 payments, about 10.3 years, and 78% after 135 payments. That puts total PMI at roughly $27,500 if you request cancellation at 80%, or about $29,900 if you wait for automatic cancellation. Extra repayments or a rise in the home’s value (confirmed by a new appraisal, if your lender allows it) can end it sooner.
There is also the interest on the extra $60,000 you borrowed. Over the full 30 years, that adds about $76,500 in interest, although you would pay less if you later paid the loan down faster or refinanced.
Now look at the alternative. Saving the extra $60,000 at $1,500 a month in an account earning 4% takes about 38 months. During those three years you keep paying rent, and house prices may move. If prices rose 3% a year, that $400,000 home would cost about $439,000 by the time you were ready, and 20% of it would be nearly $88,000. If prices fell, waiting would pay off.
There is no universal answer. A small deposit makes sense when you plan to stay put, the repayments fit comfortably, and local rents are high relative to repayments. Waiting makes more sense if the bigger loan would stretch you, or if you are not sure you will stay long enough to cover buying and selling costs. Our guide to renting vs buying covers that second question.
Watch out for capitalized insurance. If an Australian LMI premium or a Canadian default insurance premium is added to your loan, you pay interest on it too. A hypothetical $15,000 premium added to a 30-year loan at 6% adds $89.93 a month, or about $32,400 over the full term.
Costs on top of the deposit
The deposit is not the only cash you need. Budget for these as well:
| Cost | US | Australia | UK | Canada |
|---|---|---|---|---|
| Purchase taxes | Transfer taxes in some states and cities | Stamp duty (transfer duty), set by each state, with first-home concessions | Stamp Duty Land Tax in England and Northern Ireland, LBTT in Scotland, LTT in Wales | Provincial land transfer tax, plus municipal tax in some cities, with first-time buyer rebates in some provinces |
| Legal and settlement | Closing costs: lender fees, title insurance, escrow and recording fees | Conveyancing or solicitor fees, settlement and registration fees | Solicitor or conveyancer fees, searches, lender fees | Legal fees, title insurance, adjustments |
| Checks | Home inspection, appraisal | Building and pest inspection, valuation | Survey, valuation | Home inspection, appraisal |
| Other | Prepaid property tax and insurance into escrow | Loan establishment fees | Broker fees, if any | Sales tax on the default insurance premium in some provinces, payable in cash |
In the US, closing costs are often estimated at 2% to 5% of the purchase price, so on a $400,000 home, $8,000 to $20,000. US lenders must give you a Loan Estimate within three business days of your application, which itemizes these costs, so use it to plan. In Australia, stamp duty alone can run to tens of thousands of dollars in most states unless a concession applies.
Then add moving costs, immediate repairs or furniture, and an emergency fund. Keep several months of expenses in reserve after settlement, because new owners often face an unexpected repair early on.
So how much do you actually need?
Think in three layers:
- The minimum: your loan program’s minimum deposit plus all upfront costs.
- The comfortable amount: enough to avoid mortgage insurance or to reach the next lower LTV pricing tier, if that is realistic for you.
- The buffer: savings left over after settlement for emergencies.
For the $400,000 example, assuming upfront costs of 3% ($12,000):
| Deposit | Deposit amount | Plus upfront costs | Cash needed (before buffer) | Months to save at $2,000/month, 4% interest |
|---|---|---|---|---|
| 5% | $20,000 | $12,000 | $32,000 | 16 |
| 20% | $80,000 | $12,000 | $92,000 | 43 |
To hit $92,000 in three years instead, you would need to save about $2,410 a month at the same 4%. The savings goal calculator runs this for any target and date, and the affordability calculator shows what price range your income and deposit support. Lenders will also look at your debt-to-income ratio, so check that before you settle on a target.
How to save your deposit faster
- Set a specific target. Use real local prices and costs, then set a monthly amount and a date.
- Automate it. Move the money on payday into a separate account you don’t use for spending.
- Earn interest on it. A high-interest savings account or term deposit helps, and as the guide to compound interest shows, modest rates add up. Keep a short-term deposit fund out of volatile investments.
- Use first-home tax breaks where available. Examples include the Lifetime ISA in the UK, the First Home Savings Account and Home Buyers’ Plan in Canada, the First Home Super Saver Scheme in Australia, and in the US, penalty-free IRA withdrawals for first-time buyers (up to a limit). Each has rules and limits, so check them before you rely on one.
- Document family help. If relatives are giving you money, lenders will usually want a gift letter and to see where the funds came from. Some lenders treat guarantor or family-pledge arrangements as an alternative to a larger deposit.
- Clear expensive debt. Paying off credit cards improves both your borrowing power and your monthly budget.
Check the rules before you count on them
Deposit minimums, government schemes, price caps, insurance premiums and tax concessions all change. Before you build a plan around any of them, confirm the current rules with a lender, a licensed broker or the official sites linked above. Then run your own numbers in the mortgage calculator so you know the repayment you are signing up for, not just the deposit you need to get there.
This guide is general information, not personal financial advice. Rules and products vary by country and lender.