10% vs 20% Down Payment
Putting 10% down means paying PMI for a while — but it also means an extra 10% of the price stays in your pocket, earning a return. Is 20% down really worth the wait? Run your numbers.
Your numbers
Down payment only — we exclude closing costs, taxes, and insurance on both sides. Appreciation controls how fast the 10%-down loan reaches 80% LTV and sheds PMI.
Scenario A: 10% down
Bigger loan, plus PMI until you reach 80% loan-to-value. The 10% you didn't put down stays invested at your alternative return.
Monthly payment (P&I)
—
+ —/mo PMI while it lasts
Cash needed at closing
—
Total interest + PMI over the term
—
PMI drops after
—
Total PMI paid: —
Scenario B: 20% down
Smaller loan, no PMI ever — but an extra 10% of the price is locked into the house instead of earning elsewhere.
Monthly payment (P&I)
—
No PMI
Cash needed at closing
—
Total interest over the term
—
Cumulative cost over the term
What PMI actually is
Private mortgage insurance protects the lender, not you — if you default, the insurer covers part of their loss. You pay the premium anyway: typically 0.2–1.5% of the loan amount per year, baked into your monthly payment, until your loan-to-value ratio reaches 80%. It buys you exactly one thing — the ability to buy with less than 20% down.
The case for waiting for 20%
No PMI, a smaller loan (so less interest every single month), and an instant 20% equity cushion. If the market dips 10%, the 20%-down buyer still has equity; the 10%-down buyer is close to underwater. If you're a year or less away from 20% and prices in your area are flat, waiting is hard to argue with.
The case for buying now with 10%
Two things work in its favor. First, home prices may appreciate faster than you can save — chasing a 20% down payment on a price that grows 5% a year is running up a down escalator, and every month you wait you're also paying rent (which we don't model here, but it's a real cost of waiting). Second, the 10% you didn't put down can stay invested. At the alternative return you set above, its growth offsets a chunk — sometimes all — of the PMI and extra interest. That's why the winner here is judged on net cost: total interest + PMI, minus what the kept cash earns.
About these projections
Appreciation drives the PMI-drop month: we recompute loan-to-value every month as the remaining balance divided by the appreciated home value, and stop charging PMI once LTV reaches 80%. Real-world rules are stricter: the federal right to cancel at 80% LTV (Homeowners Protection Act) counts only the home's original value. To get credit for appreciation you rely on Fannie/Freddie servicing policy instead — a new appraisal, at least two years of payments, and usually 75% LTV if the loan is two to five years old (80% only after five years). Treat our PMI-drop month as a best case. If you do nothing, PMI cancels automatically at 78% LTV based on the original value, which takes longer. We also assume the same rate for both loans; in reality a lower LTV can earn a slightly better rate, which tilts further toward 20% down.
FAQ
Can I just pay PMI upfront, or get lender-paid PMI?
Yes to both. Single-premium PMI is a one-time payment at closing — cheaper over a long stay, wasted money if you sell or refinance early. Lender-paid PMI rolls the cost into a higher rate, which sounds tidy but never cancels: you pay that rate until you refinance. Monthly PMI is the only flavor that simply goes away when you hit 80% LTV.
Does PMI apply to FHA loans?
No — FHA loans carry MIP (mortgage insurance premium) instead, with different rules: an upfront premium of 1.75% of the loan plus an annual premium, and if you put down less than 10%, MIP lasts for the life of the loan — it doesn't cancel at 80% LTV. Many FHA borrowers escape it by refinancing into a conventional loan once they have 20% equity. This page models conventional PMI only.
Should I drain my emergency fund to hit 20%?
No. PMI on the missing 10% of a typical loan runs a few hundred dollars a month at most, and it eventually goes away. An empty emergency fund is a different kind of risk: one roof leak or job loss away from high-interest debt — secured by nothing — right after you took on a mortgage. Liquidity beats PMI math. Keep the cushion, pay the PMI, and request cancellation the month you can.