No.
Let’s get that out of the way first.
You do not necessarily need a 20% down payment to buy a house in Texas.
Yet we meet buyers all the time who have built their entire home-buying timeline around that number.
“I’ll buy when I have 20% saved.”
Why 20%?
Usually because somebody told them years ago that 20% is what responsible people put down, PMI is terrible, and anything less means they’re not financially ready to own a home.
That’s a pretty big conclusion built on a pretty incomplete understanding of the options.
On a recent episode of DFW Real Estate Weekly, our longtime mortgage expert Patrick Glaros joined us to talk about exactly this. He explained that some conventional first-time buyers may have options with as little as 3% down, while FHA financing can allow 3.5% down. He also said he commonly sees Dallas-Fort Worth buyers putting somewhere around 3% to 10% down, depending on their circumstances.
So 20% isn’t the starting line.
It’s one option.
Why Does Everyone Think You Need 20% Down?
There’s a legitimate reason the number exists.
With many conventional mortgages, putting at least 20% down allows a buyer to avoid private mortgage insurance, commonly called PMI.
PMI protects the lender when a borrower makes a smaller down payment. It adds another expense to the cost of owning the home.
Naturally, buyers hear that and conclude:
PMI costs money. Therefore PMI is bad. Therefore I should avoid PMI. Therefore I must put 20% down.
Slow down.
The first statement is true.
The rest require some math.
The real question isn’t whether PMI costs money, but rather what you receive in exchange for keeping more of your cash.
What Does 20% Down Actually Cost You?
Let’s make this practical.
Imagine you’re buying a $400,000 home.
A 20% down payment is $80,000.
A 10% down payment is $40,000.
That’s a $40,000 difference.
Forty thousand dollars of actual cash you had to earn, pay taxes on, save, and then move from your bank account into the house.
So the question shouldn’t simply be, “Can I avoid PMI?”
It should also be, “What does putting another $40,000 into this house actually accomplish?”
How much does it lower your monthly payment?
How much PMI would you otherwise pay?
How much cash will you have left after closing?
Do you need money for moving, furniture, repairs, reserves, or other priorities?
Could some of that money be used more effectively elsewhere?
PMI Is a Cost, Not a Moral Failure
People get weird about PMI.
They talk about it as if paying mortgage insurance means you have committed some sort of financial sin.
It’s a financing expense.
That’s it.
Sometimes paying it makes sense.
Sometimes avoiding it makes sense.
According to Glaros, for a conventional borrower with strong credit, mortgage insurance can sometimes be relatively small when compared with the entire housing payment.
That doesn’t mean everyone should pay PMI.
It means you should know the actual number before reorganizing your financial life around avoiding it.
If putting another $40,000 down only changes the economics modestly, you ought to know that.
If it changes them dramatically, you ought to know that too.
Do the math on your deal instead of on somebody else’s rule of thumb.
A Bigger Down Payment Isn’t Automatically a Better Decision
More down generally means less borrowed.
That’s real.
But that doesn’t automatically make the largest possible down payment the smartest possible decision.
When Patrick and I discussed this on the radio show, he described working backward from what the buyer is actually trying to accomplish.
Maybe the priority is a certain monthly payment.
Maybe it’s keeping more cash available.
Maybe it’s reducing the loan balance.
Maybe it’s buying down the interest rate.
Maybe you’re selling another Dallas-Fort Worth home and deciding how much of your equity should go into the next one.
Those scenarios can produce very different answers.
I’ve made real estate and financing decisions in my own family where the lowest mortgage rate and biggest down payment were not the best combination for what we were trying to accomplish.
We weren’t being reckless.
Quite the opposite.
We looked at all of the options and made the decision that best stewarded the resources we had.
That’s different from blindly following a rule.
Waiting for 20% Has a Cost Too
This is the part buyers often miss.
Waiting isn’t free.
Suppose you’re financially capable of buying a home today with less than 20% down, but you decide you’re going to wait another two or three years until you reach that magic number.
What happens during those years?
Nobody knows exactly.
Home prices could rise.
Mortgage rates could change.
Rents could increase.
The house you eventually buy could cost considerably more.
Or the market could move the other direction.
That’s why I wouldn’t tell someone, “Always buy now.”
That’s nonsense.
The right time to buy a home is when you, your family, and your finances are ready.
But if you are ready and the only thing stopping you is a belief that you’re required to have 20% down, get the facts before you wait.
You may be solving a problem you don’t actually have.
Your Down Payment Is Only One Part of Home Affordability
Dallas-Fort Worth buyers also need to understand something especially important in Texas.
Your mortgage isn’t your entire housing payment.
- Property taxes matter.
- Homeowners insurance matters.
- Interest matters.
- Mortgage insurance may matter.
- HOA dues may matter.
- The condition of the property certainly matters.
This is another reason I dislike simplistic rules about down payments.
A buyer could proudly put 20% down and still buy a house with a monthly payment that doesn’t make sense for the family.
Another buyer could put 10% down, maintain healthy cash reserves, buy the right property at the right price, and comfortably afford the payment.
Which buyer made the better decision?
The percentage alone can’t tell you.
Start the Mortgage Conversation Earlier Than You Think
This was one of the clearest points Patrick made during our conversation.
Talk to a mortgage professional early.
Not after you’ve fallen in love with a house.
Not three days before you want to write an offer.
Early.
If you’re thinking you may buy a Dallas-Fort Worth home six months from now, start understanding the numbers now.
Maybe 20% down really is the best strategy for you.
Great.
Maybe 10% makes more sense.
Maybe you qualify for a 3% or 3.5% down option.
Maybe there’s something on your credit report you need time to address.
Maybe selling your current home first changes the entire equation.
More time gives you more information.
More information gives you more options, and options are valuable.
So, How Much Should You Put Down on a House in Texas?
Enough to accomplish your goals without blindly draining cash simply because somebody told you 20% is the “right” number.
For one buyer, that may absolutely be 20%.
For another, it may be 10%.
For a qualified first-time buyer using certain conventional financing, an option as low as 3% may be available. FHA financing may allow 3.5% down.
The point isn’t that smaller is better.
It isn’t.
The point is that 20% isn’t automatically better either.
- Know your options.
- Know the payment.
- Know the cost of PMI.
- Know what happens to your cash.
Then make the decision based on the entire picture.
That’s how grown-ups make large financial decisions.
Frequently Asked Questions
Do first-time home buyers need 20% down in Texas?
No. Depending on qualification and loan type, some first-time buyers may have conventional financing options requiring as little as 3% down.
How much do you need down for an FHA loan?
3.5% down is often an option for qualified FHA buyers.
What happens if I put less than 20% down?
With many conventional loans, you may pay private mortgage insurance, or PMI. The actual cost depends on your specific financing and qualifications.
Is it better to put 10% or 20% down on a house?
There isn’t one answer for every buyer. Compare the monthly payment, PMI, cash required at closing, remaining reserves, and your overall financial goals.
Should I wait until I have 20% saved to buy a house?
Not simply because you believe 20% is required. Find out which financing options are actually available to you and compare the complete cost before deciding to wait.
Buying or Selling a Home in Dallas-Fort Worth?
Don’t build a major real estate decision around a rule you heard somewhere ten years ago.
Get the numbers.
Understand the options.
Then make a great decision.
If you’re considering buying a home in Dallas-Fort Worth, or you need to sell your current home before buying the next one, work with the Todd Tramonte Home Selling Team.
Visit DallasHomeRealty.com or call 214-216-2161.
20% down might be right for you.
It just isn’t the price of admission.
