20% Down vs Paying PMI: Should You Wait or Buy Now?

What PMI actually costs — and why it ends

Private mortgage insurance protects the lender, not you, when you put down less than 20%. In exchange, it lets you buy with as little as 3%–10% down. The cost typically runs 0.3% to 1.5% of the loan amount per year, billed monthly and folded into your mortgage payment. Your exact rate depends on your credit score and how much you put down — a borrower with a 760 score and 10% down might pay near the bottom of that range, while a 660 score with 5% down pays near the top.

The key fact most buyers miss: PMI is temporary. Under federal law, your servicer must automatically cancel it once your loan balance reaches 78% of the home's original value, and you can request removal earlier at 80% loan-to-value (LTV). On a $360,000 loan against a $400,000 home (10% down), you start at 90% LTV and reach the 80% request threshold after paying the balance down to $320,000 — a few years of normal payments, faster if the home appreciates or you make extra principal payments.

The real cost of waiting for 20%

Saving the second 10% on a $400,000 home means stashing another $40,000. If you can save $1,000 a month, that's over three years — and that math assumes the home you want still costs $400,000 when you're done. It usually doesn't. At even 4% annual appreciation, a $400,000 home becomes roughly $416,000 after one year and $450,000 after three. Your 20% target rises right along with it: now you need $90,000, not $80,000.

Meanwhile you're paying rent the whole time. At $2,200 a month, three years of waiting is about $79,000 in rent with zero equity to show for it. The opportunity cost of waiting — higher purchase price, lost equity, and rent paid — frequently dwarfs the few thousand dollars of PMI you'd pay by buying now. PMI is a small, temporary fee; rising prices and rent are a large, permanent headwind.

A worked example: $400,000 home, 20% vs 10% down

Compare the two paths on the same house at a 6.75% 30-year fixed rate:

• 20% down ($80,000): $320,000 loan, payment about $2,076/month in principal and interest, no PMI.
• 10% down ($40,000): $360,000 loan, payment about $2,335/month in principal and interest, plus PMI. At 0.5% annually that's $150/month in PMI on top.

So the 10%-down buyer pays roughly $409 more per month at first — $259 from the larger loan and $150 from PMI. But the PMI portion vanishes once they hit 80% LTV, dropping that gap to about $259. And they bought the house three years sooner, kept $40,000 liquid, and started building equity immediately. Run your own numbers — purchase price, down payment percentage, credit score, and rate — in the calculators below.

How to make the PMI route work for you

If you decide to buy now with PMI, a few moves get rid of it faster and cheaper:

1. Track your LTV and request cancellation at 80%. Don't wait for the automatic 78% trigger — requesting at 80% gets you off PMI months sooner. Many servicers will use a current appraisal, so a hot local market can get you there even faster.
2. Make extra principal payments. An extra $200/month on a $360,000 loan shaves significant time off the road to 80% LTV.
3. Consider lender-paid PMI for a higher rate. Sometimes a slightly higher interest rate with no separate PMI line wins if you plan to refinance or move within a few years — compare total cost both ways.
4. Refinance once you have 20% equity. If rates drop and your equity has grown, refinancing both lowers your rate and drops PMI in one step.

The bottom line: 20% down is cleaner if you already have the cash and prices are calm. For everyone else, PMI is a modest, temporary toll for getting into the market years earlier — and that head start usually wins.

Should I wait to put 20% down or buy now with PMI?

For most buyers, buying now with PMI wins. PMI is temporary and modest (0.3%–1.5% of the loan per year), while waiting years exposes you to rising home prices and rent with no equity. Wait for 20% only if you're close to the cash, prices are flat, and your PMI rate would be high.

How much does PMI cost on a $400,000 home?

On a $360,000 loan (10% down) at a typical 0.5% annual PMI rate, expect about $150 per month — roughly $1,800 a year. Rates range from 0.3% to 1.5% depending on your credit score and down payment, so a lower score or smaller down payment can push the monthly cost to $250 or more.

When does PMI automatically go away?

Federal law requires your servicer to automatically cancel PMI when your loan balance reaches 78% of the home's original value. You can request cancellation earlier at 80% loan-to-value, which usually saves you several months of premiums. Appreciation and extra principal payments both get you there faster.

Does a bigger down payment lower my monthly payment?

Yes, in two ways. A larger down payment shrinks the loan, so the principal and interest are lower, and once you reach 20% down you pay no PMI at all. On a $400,000 home, going from 10% to 20% down cuts the loan by $40,000 and eliminates roughly $150 a month in PMI.

Can I get rid of PMI without refinancing?

Yes. Once your loan-to-value reaches 80%, you can request that your servicer cancel PMI without a refinance — often using a current appraisal to confirm your equity. You don't have to wait for the automatic 78% threshold, and you avoid the closing costs a refinance would charge.

Is PMI tax-deductible?

PMI deductibility has changed repeatedly with tax law and has been subject to income limits and expiration dates, so don't count on it. Treat PMI as a straight monthly cost in your buy-now-versus-wait math, and check the current year's rules or ask a tax professional before assuming any deduction.