Down Payments and PMI
The 20 percent down payment is a benchmark, not a rule, and most first-time buyers put down far less. What a smaller down payment actually costs is mostly one thing: private mortgage insurance, a charge with clear mechanics, a known end date, and tradeoffs you can weigh in advance.
A down payment is the part of the purchase price paid in cash up front; PMI, private mortgage insurance, is the monthly charge conventional lenders add when the down payment is below 20 percent, and it ends once the loan falls to a set share of the home's value.
Why it matters
The down payment question delays more first purchases than any other, often because people treat 20 percent as an entry requirement. In recent NAR Profile of Home Buyers and Sellers surveys, the median first-time buyer put down roughly 9 percent, while repeat buyers, who bring equity from a prior home, put down roughly in the low twenties. Knowing the real medians replaces a myth with a decision.
PMI is the price of that flexibility, and it is widely misunderstood in both directions. It is not a fee you pay forever, and it is not protection for you: it insures the lender against default. Treating it as a known, temporary cost lets you compare saving longer against buying sooner with arithmetic instead of folklore.
The down payment size also shapes everything downstream: the loan size, the monthly payment, the rate you are offered, and how much cash remains for closing costs, moving, and the cushion every new owner needs. It is less a single number than the first allocation decision of homeownership.
Step by step
- 1
Know what the down payment actually does
Every dollar down is a dollar not borrowed: it lowers the loan, the monthly payment, and lifetime interest, and it starts you with equity. Larger down payments can also improve the offered rate, because the lender's risk falls as your stake rises.
- 2
Retire the 20 percent myth, carefully
Twenty percent is the threshold where conventional loans drop PMI, not a legal minimum. Conventional programs commonly allow much less down, and government-backed programs have their own structures with different insurance arrangements. The right number is the one that balances payment, insurance cost, and the cash you keep.
- 3
Understand what PMI is and is not
PMI protects the lender, not you, if the loan defaults. You pay for it, usually as a monthly amount added to the payment, sized by your down payment, credit, and loan. As a rough sense of scale it typically runs from a fraction of a percent to somewhere over one percent of the loan balance per year; the exact premium is loan-specific.
- 4
Know when PMI ends
For conventional US loans, federal rules let you request cancellation when the balance reaches 80 percent of the home's original value on schedule, and require automatic termination at 78 percent. Rising home values can accelerate the request path. The CFPB pages in the sources spell out the exact conditions.
- 5
Plan the cash beyond the down payment
Closing costs, moving, immediate repairs, and an emergency cushion all draw from the same savings. A slightly smaller down payment that preserves the cushion is often the steadier structure than emptying every account to avoid PMI. Parking the growing fund in a high-yield savings account keeps it safe and earning while you save.
Practical example
Hypothetical figures that show the mechanics, never quotes or predictions.
Suppose a $350,000 home. A 10 percent down payment is $35,000, leaving a $315,000 loan; at an invented PMI rate of 0.6 percent a year, PMI adds about $158 a month until it ends. A 20 percent down payment is $70,000, with no PMI and a smaller payment, but it takes years longer to save and leaves less cushion after closing. Neither is the right answer in general; the example exists to show what the tradeoff is made of. All figures are hypothetical, not quotes.
Common mistakes
- Waiting years to reach 20 percent while paying rent the whole time, without ever comparing the full cost of both paths.
- Emptying the emergency fund to dodge PMI, then meeting the first roof or furnace repair with a credit card.
- Confusing PMI with homeowners insurance. One protects the lender from default; the other protects the property, and you need the second regardless.
- Forgetting that PMI ends. It is a temporary cost with defined exit rules, not a permanent feature of the loan.
- Comparing down payment options without rerunning the payment: the loan size, rate, and insurance all shift together.
How to apply it
Practical pointers for learning, not advice or recommendations.
- Use the Housing Affordability Tracker to run the same home at two down payments and see both payments side by side.
- If you are saving toward a purchase, give the fund its own account; the sinking-funds lesson covers the mechanics.
- Ask any lender quoting PMI for the exact monthly amount and the projected end date in writing; both are knowable up front.
- Mark the 80 percent threshold on your own amortization schedule after buying, so you request cancellation the month you qualify.
Frequently asked questions
How much down payment do I really need?
Less than the folklore says. Conventional programs commonly allow well under 20 percent down, government-backed programs have their own minimums, and in recent NAR surveys the median first-time buyer put down roughly 9 percent. The practical question is not reaching a magic number but balancing the monthly payment, the PMI cost, and the cash you keep for everything else.
What exactly is PMI?
Private mortgage insurance is a policy that protects the lender if a conventional loan with less than 20 percent down defaults. You pay the premium, most often as a monthly addition to the payment, and the amount depends on your down payment, credit, and loan details. It buys you access to the loan sooner; it provides no coverage to you directly.
How much does PMI cost?
It is loan-specific, set by down payment size, credit score, and program. As a rough range it commonly runs from a fraction of a percent to a bit over one percent of the loan balance per year, billed monthly. Any lender quoting you a loan with PMI can state the exact dollar amount and projected end date; ask for both.
When does PMI go away?
Under US federal rules for conventional loans, you can request cancellation when the balance reaches 80 percent of the home's original value per the schedule, and the servicer must terminate it automatically at 78 percent if you are current. Home price appreciation can support an earlier request. The CFPB source below lists the precise conditions.
Is paying PMI throwing money away?
It is a cost, and like rent it buys something real: in this case, owning years earlier than a 20 percent target would allow. Whether that trade is worth it depends on home costs, rents, and your savings rate, which is arithmetic, not principle. Run both paths honestly before deciding; sometimes waiting wins, sometimes it does not.
Can I avoid PMI without 20 percent down?
Some lenders offer structures that trade PMI for a higher rate or a second loan, and some programs handle insurance differently. These move the cost around rather than deleting it, so compare the all-in monthly cost and lifetime cost across structures rather than treating no-PMI as automatically cheaper.
Is this financial advice?
No. This page is education and general information only. It is not financial, legal, tax, or lending advice, and it does not recommend any loan, program, or down payment size. Program rules change and vary by location and borrower, so verify current details with official sources and consider speaking with a qualified professional.
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Sources and last reviewed
- NAR Profile of Home Buyers and Sellers (annual report highlights)
- CFPB: What is private mortgage insurance?
- CFPB: When can I remove private mortgage insurance from my loan?
Statistics on this page were checked against the sources above. Last reviewed June 11, 2026.
Educational content only. This is a plain-English explanation for learning. It is not financial, legal, tax, lending, or investment advice, it recommends no lender, agent, loan, or security, and it makes no predictions about home prices or rates. Examples are simplified and hypothetical. Costs and rules differ by location and everyone's situation is different, so always do your own research and consider speaking with a qualified professional.