Guide
"You need 20% down to buy a house" is one of the most persistent myths in real estate. You usually don't — but putting down less than 20% typically triggers an extra monthly cost called PMI. Understanding the trade-off helps you decide how much to put down.
Your down payment is the portion of the price you pay upfront in cash; the mortgage covers the rest. A larger down payment means a smaller loan, a lower monthly payment, less total interest, and instant equity. But it also ties up cash you might need for closing costs, moving, and reserves. The right amount balances all of these — not just the biggest number you can scrape together.
Private mortgage insurance (PMI) is insurance that protects the lender — not you — if you default. On conventional loans, it's generally required when your down payment is under 20%, because a smaller down payment is statistically riskier for the lender. As Fannie Mae explains, PMI is an added monthly cost that protects the lender, not you. It typically costs about 0.5% to 1.5% of the loan amount per year, added to your monthly payment. On a $300,000 loan, that's roughly $125 to $375 a month.
Putting less down to avoid draining your savings can be the smarter move — paying PMI for a few years may cost less than being cash-poor after closing. The Consumer Financial Protection Bureau notes the 20% threshold traces back to guidelines set by Fannie Mae and Freddie Mac, which guarantee most U.S. mortgages.
Numbers make the trade-off concrete. Compare two ways to buy the same $350,000 home:
| Scenario | Down payment | Loan amount | Est. PMI (0.7%/yr) |
|---|---|---|---|
| 10% down | $35,000 | $315,000 | ~$184/month |
| 20% down | $70,000 | $280,000 | $0 |
Going from 10% to 20% down here means finding an extra $35,000 in cash to avoid about $184 a month in PMI. If it would take you a couple of years to save that extra $35,000, buying now with 10% down costs roughly $184/month in PMI in the meantime — and because conventional PMI is cancellable, you can drop it once you reach 20% equity through payments or appreciation. Whether the wait is worth it depends on your local market and how quickly you'd otherwise build equity. The point is to compare the real dollar cost of PMI against the real cost of delaying — not to assume 20% down is automatically right.
The good news: conventional PMI isn't permanent. Under the federal Homeowners Protection Act, you can request cancellation once your loan balance is scheduled to reach 80% of the home's original value, and — as long as you're current on payments — your servicer must automatically terminate it at 78%, according to the Consumer Financial Protection Bureau. You can reach those thresholds faster by making extra principal payments or if your home appreciates and you refinance or request a new appraisal.
Note that FHA loans work differently: their mortgage insurance premium (MIP) often lasts the life of the loan if you put down less than 10%, so many borrowers refinance out of FHA into a conventional loan once they have enough equity. This is a key reason to compare an FHA loan against a low-down-payment conventional loan up front — the FHA option may have an easier credit bar but a more permanent insurance cost.
Beyond simply putting 20% down, borrowers use a few approaches. Lender-paid PMI folds the insurance cost into a slightly higher interest rate rather than a separate monthly line — sometimes cheaper overall, but it can't be cancelled the way borrower-paid PMI can. A piggyback loan (often called an 80/10/10) pairs a first mortgage for 80% with a second loan for 10% and 10% down, avoiding PMI at the cost of a second monthly payment, usually at a higher rate. And, as covered above, VA loans require no mortgage insurance for eligible service members and veterans. Each option has trade-offs, so run the full monthly numbers before deciding.
PMI isn't a single flat number — insurers price it based on how risky the loan looks. The biggest factors are your loan-to-value ratio (a 5% down payment carries a higher PMI rate than 15% down) and your credit score (higher scores get lower premiums). Loan type, term, and whether the property is your primary residence also matter. That's why two buyers on the same-priced home can pay very different PMI amounts. Improving your credit score before you apply can lower not just your interest rate but your PMI cost too, so it's worth a few months of effort if your score is on a boundary.
Because PMI ends when you reach enough equity, it pays to know where you stand. Keep an eye on your loan balance relative to the home's original value, and mark the month you expect to hit 80% loan-to-value — that's when you can request cancellation in writing. If home prices in your area have risen sharply, you may reach the equity threshold ahead of schedule through appreciation; some servicers will drop PMI early based on a new appraisal you pay for. Left unmanaged, PMI can quietly cost you for longer than necessary, so treat the cancellation milestone as a task, not something that happens automatically before the 78% mark.
The mortgage payment calculator lets you toggle your down payment and see PMI added to or removed from your monthly payment, so you can compare scenarios side by side. For the official rules on canceling PMI, see the CFPB's PMI cancellation guidance.
Do I really need 20% down to buy a house? No. Conventional loans can go as low as 3% down, FHA as low as 3.5%, and VA and USDA loans can require 0% for eligible buyers. Below 20% down on a conventional loan you'll pay PMI, but that's a monthly cost you can later cancel — not a barrier to buying.
How do I get rid of PMI on a conventional loan? You can request cancellation once your balance reaches 80% of the home's original value, and your servicer must automatically remove it at 78%, provided your payments are current. Extra principal payments or home-price appreciation (which some lenders will recognize with a new appraisal) can get you there sooner. See the CFPB for the official rules.
Is PMI tax-deductible? The deductibility of mortgage insurance has changed several times and depends on current tax law and your income. This site is educational only and not tax advice — check with a qualified tax professional and the IRS for the rules that apply to your return.
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