What is the minimum down payment required for purchasing a house?

The down payment is the initial cash payment made by a buyer for a home, while the rest is financed through a mortgage.

Typically, a 20% down payment is advised when saving for a house, but this has not been the norm for decades.

CNBC Select examines the source of the 20% recommendation, the true size of your down payment, and other related matters.

Do you need a 20% down payment?

It's possible to put less or nothing down on a loan depending on your qualifications.

During the Great Depression, when almost half of urban mortgages were delinquent, the 20% down payment rule was introduced. Despite the economic recovery, many lenders required 20% down in the 1950s and 1960s.

Private mortgage insurance (PMI) was introduced in the late 1950s to safeguard lenders against borrower defaults. In 1971, the Federal Home Loan Bank Board permitted savings and loans to approve conventional mortgages with as little as 5% down payment with PMI.

According to a Washington Post analysis of National Association of Realtors data, the median down payment was only 13% by 2005.

If you put down less than 20% for a mortgage, you may need to obtain private mortgage insurance (PMI), which costs an average of 0.50% of your mortgage, and you must keep it until you have at least 20% equity in your home.

How much do I need for a down payment?

Government agencies and private lenders offer down-payment assistance programs to help homebuyers who don't have enough money down. These programs include grants, low- and no-interest loans, and other forms of support. Freddie Mac's DPA One guide lists hundreds of such programs available throughout the U.S.

Benefits of a smaller down payment

By making a smaller down payment, you can purchase a home more quickly and have more funds available for repairs, insurance, and other financial objectives.

Ally Bank offers a Fannie Mae-backed HomeReady loan with a fixed-rate mortgage, allowing qualified borrowers to put down as little as 3% with no lender's fee and an online preapproval process. However, a minimum credit score of 620 is required, and Ally does not provide government-insured loans.

If you make a smaller down payment, you'll have less equity in your home.

Benefits of a larger down payment

A larger down payment can make borrowers more appealing to mortgage lenders, potentially resulting in a lower interest rate and fewer fees. With a 20% down payment, you may be able to avoid mortgage insurance. Additionally, a larger down payment means you'll have more equity in the home from the start. If you plan to refinance your mortgage, you'll typically need 20% home equity.

How to save for a down payment

To afford a healthy down payment and have something set aside for closing costs and emergencies, consider financial products that can grow your money faster if you've set homebuying as a medium- to long-term goal.

An account with Western Alliance Bank's high-yield savings account (HYSA) can earn more than 5% interest while still allowing you to withdraw funds if something unexpected happens. With just a dollar to open an account, there are no minimum balance requirements or monthly fees.

To earn an additional 0.20% APY on a UFB Secure Savings account, you must add a UFB Freedom checking account and meet certain requirements. These include setting up monthly direct deposit of at least $5,000, maintaining a minimum balance of $10,000, and making 10 debit card transactions per statement cycle. Unlike Western Alliance, a UFB account comes with an ATM card that allows for unlimited withdrawals.

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Bottom line

For decades, the median down payment for first-time homebuyers has been less than 10%, which means that the 20% down payment rule is no longer accurate. Ultimately, the amount you put down is up to you, but it's important to understand the benefits and risks of putting less down before making a purchase.

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