Down Payment & PMI: What You Need to Know
Putting less than 20% down triggers PMI on conventional loans. PMI protects the lender if you default. It is automatically removed when you reach 22% equity (by law) or can be removed at 20% equity by request. FHA loans have MIP which may be permanent depending on your loan terms.
Down Payment & PMI Calculator
PMI shown is an estimate (≈ 0.5% of loan annually when putting less than 20% down). For exact PMI by LTV and credit, use our PMI calculator.
Down Payment Analysis
| Metric | Value |
|---|---|
| Down Payment Amount | |
| Loan Amount | |
| Monthly P&I | |
| Monthly PMI |
How the Down Payment Calculator Works
This calculator shows how your down payment size changes your loan amount, monthly payment, and whether you will owe private mortgage insurance (PMI). Enter a home price and a down-payment percentage or dollar amount to see the loan size and estimated PMI.
The Core Relationship
Loan Amount = Home Price − Down Payment
Loan-to-Value (LTV) = Loan Amount ÷ Home Price × 100
If your LTV is above 80%, most conventional loans require PMI. Drop below 80% and PMI can be avoided or removed.
Why 20% Is Not Mandatory
Many loans allow 3% (conventional), 3.5% (FHA), or 0% (VA/USDA) down. PMI on a smaller down payment is temporary—cancellable at 20% equity. The trade-off is a higher monthly payment and PMI cost versus keeping more cash in reserve. Our 20% vs lower guide runs the full comparison.
Example
| Down | Loan (on $400k) | PMI? |
|---|---|---|
| 5% | $380,000 | Yes |
| 10% | $360,000 | Usually |
| 20% | $320,000 | No |
Tips
- Pair this with our PMI calculator for the exact insurance cost.
- Check state assistance programs that grant down-payment help.
- Plan closing costs (2–5% of loan) separately from your down payment.
Frequently Asked Questions
What is a good down payment?
The best down payment is one that keeps you housed and resourced. 3–20% all work; choose based on cash reserves and PMI trade-offs.
Can gifts count toward my down payment?
Yes, with a gift letter from the donor. Lenders require documentation that it is not a loan.
When can I drop PMI?
At 20% equity by payment or appreciation (request cancellation), or auto at 22%. See our amortization calculator to track LTV.
How the Down Payment Calculator Works
This calculator shows how your down payment size changes your loan amount, monthly payment, and whether you will owe private mortgage insurance (PMI). Enter a home price and a down-payment percentage or dollar amount to see the loan size and estimated PMI.
The Core Relationship
Loan Amount = Home Price − Down Payment
Loan-to-Value (LTV) = Loan Amount ÷ Home Price × 100
If your LTV is above 80%, most conventional loans require PMI. Drop below 80% and PMI can be avoided or removed.
A Worked Example
| Down | Loan (on $400k) | PMI? | Notes |
|---|---|---|---|
| 5% | $380,000 | Yes | Lowest cash needed |
| 10% | $360,000 | Usually | Middle ground |
| 20% | $320,000 | No | Best pricing |
Why 20% Is Not Mandatory
Many loans allow 3% (conventional), 3.5% (FHA), or 0% (VA/USDA) down. PMI on a smaller down payment is temporary—cancellable at 20% equity. The trade-off is a higher monthly payment and PMI cost versus keeping more cash in reserve. Our 20% vs lower guide runs the full comparison.
Tips
- Pair this with our PMI calculator for the exact insurance cost.
- Check state assistance programs that grant down-payment help.
- Plan closing costs (2–5% of loan) separately from your down payment.
Gift Funds and Grants
Down payments can include documented gifts from family and grants from state programs. Both require paperwork (a gift letter or grant award) so the lender knows the funds are not a loan. Stacking a grant on top of your savings can get you to 20% faster and drop PMI entirely.
Frequently Asked Questions
What is a good down payment?
The best down payment is one that keeps you housed and resourced. 3–20% all work; choose based on cash reserves and PMI trade-offs.
Can gifts count toward my down payment?
Yes, with a gift letter from the donor. Lenders require documentation that it is not a loan.
When can I drop PMI?
At 20% equity by payment or appreciation (request cancellation), or auto at 22%. See our amortization calculator to track LTV.
Should I drain savings to hit 20%?
Usually no. Keeping an emergency fund is critical; being "house poor" with no reserves is riskier than paying PMI for a while.
Down Payment and Your Offer Strength
In competitive markets, a larger down payment makes your offer stronger because the seller worries less about appraisal or financing risk. A 20% down offer can beat a higher offer with 3% down. If you're stretched on down payment, a strong pre-approval letter and flexible terms can compensate.
Closing Costs Are Separate
Your down payment is not your only cash need. Closing costs (2–5% of the loan), prepaid taxes and insurance, and a repair cushion add up. A buyer putting 5% down on a $400,000 home still needs roughly $20,000 down plus $10,000–$15,000 in closing and reserves. Plan the full picture with our planner.
State Assistance Synergy
Many states offer grants or second mortgages that cover part of the down payment or closing costs. Stacking assistance on your savings can get you to 20% faster, dropping PMI and lowering the rate. Browse your state guide for the specific program, assistance amount, and income limits.
Down Payment and Equity Protection
A larger down payment is a buffer if prices dip. With 20% down, you can withstand a modest market correction without going underwater. With 3% down, even a small dip puts you in negative equity. If your market is volatile, a bigger down payment is risk management, not just a math choice.
More Questions
What's the minimum down for an investment property?
Usually 15–25% depending on the loan. Owner-occupied homes get the lowest minimums.
Can I use a 401(k) for the down payment?
Some plans allow a penalty-free loan (not withdrawal) for a first home. You repay yourself with interest, but reduce retirement savings temporarily.
Does a bigger down payment always lower my rate?
Often, yes—lower LTV tiers price better—but the improvement shrinks above 20% or 25%.
Down Payment Myths That Cost Buyers
The most damaging myth is that you must wait years to save 20%. In reality, millions of buyers close every year with 3 to 10 percent down, often with grants that cover the gap. The second myth is that a smaller down payment always wastes money on PMI; in many markets the home-price appreciation you capture by buying sooner outweighs years of PMI. The third is that down-payment assistance is only for the poor; in fact many programs serve households earning up to six-figure incomes. Knowing the truth opens doors that the myths keep closed.
How Much House Does Your Down Payment Buy
Your down payment and the price you can afford move together, but not one-to-one. Because a larger down payment also lowers your loan and may remove PMI, each extra dollar down can stretch your buying power by more than a dollar. Conversely, a thin down payment limits not just the home price but your monthly comfort. Use the calculator to see the exact relationship for your situation, then decide how much cash you are willing to commit versus keep in reserve for the inevitable costs of ownership.
Stacking Assistance Strategically
Most buyers qualify for more help than they claim simply because they never ask. A typical first-time program might offer a grant plus a second mortgage, and some cities layer local help on top of the state program. Stacking these can turn a 3 percent down purchase into an effectively zero-down-one out of pocket scenario. Your state guide lists the programs, amounts, and income limits, and our planner helps you reach the cash target even faster once you know what is available.
Down Payment FAQ Quick Hits
Buyers ask repeatedly whether a bigger down payment is always smarter; the answer is no when it drains your safety net. They ask whether gifts are allowed; yes, with a letter. They ask when PMI ends; at twenty percent equity by payment or value. Each answer points the same way: the right down payment fits your whole financial life, not just the loan math. Use the calculator to model your version, then decide with eyes open rather than following a rule that was never yours.
Down Payment Pitfalls to Avoid
The first pitfall is draining every savings account to hit twenty percent and then having no cash for the inevitable first-year repairs. The second is forgetting that closing costs are separate and can reach five percent of the loan. The third is assuming assistance is only for low earners when many programs serve households up to six figures. Avoiding these three mistakes keeps your purchase safe and your transition smooth, and the calculator helps you see the full cash need rather than just the percentage.
Another common error is comparing only the down payment across loan types without counting PMI, rate tier, and mortgage insurance differences. A three percent conventional, a three and a half percent FHA, and a zero-down VA loan each carry different monthly costs and qualifications. Model your real numbers in this calculator and the PMI tool together so you choose the loan that truly costs least over your expected stay, not the one with the smallest headline percentage.
Finally, remember that the down payment interacts with everything else: a larger one lowers your rate tier, removes PMI, and shrinks your payment, while a smaller one preserves cash and captures appreciation sooner. The calculator makes these trade-offs visible so your choice is informed rather than inherited from a rule. Run your own numbers, sleep on the result, and commit to the version that leaves you both housed and resourced.
Making the Final Call
After running the numbers, the right down payment is the one that keeps you both qualified and comfortable. If twenty percent leaves you cash-poor, a smaller down payment with PMI is the smarter, safer path, and you can shed the PMI later as equity grows. If you have ample savings and a calm market, the larger down payment lowers your cost and your stress. Use this calculator to see the trade in dollars, then choose with your whole financial life in view rather than a rule borrowed from another era. The goal is a home you can afford every month, not a percentage you can brag about.