Do you have to put 20% down when buying a house? Here’s what happens if you need to make a small down payment – CNBC

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Making a 20% down payment for a home purchase has been the rule of thumb for a very long time, mostly because prior to 1956, that’s what was required of potential homebuyers. That way, if someone borrowed money from the bank to purchase a house but suddenly stopped paying their mortgage, at least the bank would still have the 20% down payment as an insurance policy of sorts.

As home values increased over the years, it became evident that not everyone could afford to pay 20% of the price of a house upfront and in full. Banks, however, weren’t just going to offer consumers loans for the home’s full price without protecting themselves from the risk of defaulting payments.

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What the least I can put down for home purchase?

By 1956, the banks decided to change the rules a bit and began allowing homebuyers to pay less than 20% as a down payment, with one important catch — those who did this would need to make an additional monthly payment, known as private mortgage insurance, or PMI, which essentially protects the bank in the event homebuyers can no longer pay their home loans.

As a result, consumers today are no longer required to put 20% down for a house — in fact, some mortgage lenders actually allow down payments as low as 3%. For example, the DreaMaker℠ loan from Chase Bank lets homebuyers put down just 3% of the home’s price, as does the HomeReady loan from Ally Bank. Making a 3% down payment for a home that costs $600,000 means you’d need to pay $18,000; a 20% down payment for the same house, on the other hand, would run you $120,000.