Private Mortgage Insurance — required on conventional loans when LTV > 80%. Auto-cancels at 78% LTV.
MIP
Mortgage Insurance Premium — FHA's version of PMI. Includes 1.75% upfront fee + 0.55%/yr ongoing (often lasts life of loan).
LTV
Loan-to-Value ratio. 80% LTV = 20% down. Lenders use this to determine PMI and loan approval.
VA Funding Fee
One-time fee (2.15% for first use) paid to the VA instead of monthly PMI. No ongoing mortgage insurance.
Closing Costs
Additional fees at purchase: appraisal, title insurance, origination, escrow. Budget 2–5% of loan amount.
Real-World Examples
Example 1
First-Time FHA Buyer
Home: $400,000 · FHA 3.5% down ($14,000) · Current savings: $10,000 · Monthly savings: $1,500 at 4.5% APY
Result: Ready in ~3 months. FHA MIP: ~$183/mo ongoing + $7,000 upfront. Total monthly payment ~$2,800 including MIP.
Example 2
Avoiding PMI Entirely
Home: $450,000 · Conventional 20% ($90,000) · Current savings: $40,000 · Monthly: $2,000 at 4.5% APY
Result: ~24 months to goal. No PMI saves ~$240/mo vs 5% down. Monthly payment ~$2,370 P&I at 6.75%.
How Much Should You Put Down on a House?
The 20% Rule and When to Break It
Putting 20% down avoids PMI and gives you instant equity, but it is not always the best strategy. If rising home prices outpace your savings, waiting for 20% may cost you more than PMI ever would. Use the PMI break-even analysis in the Scenario Analysis tab to run the numbers for your situation.
First-Time Buyer Loan Programs
FHA loans allow 3.5% down with credit scores as low as 580. VA loans offer 0% down for eligible veterans with no monthly PMI. USDA loans provide 0% down in eligible rural areas. Many states also offer down payment assistance grants — research your local HFA (Housing Finance Agency).
Opportunity Cost of a Large Down Payment
Cash used for a down payment cannot be invested elsewhere. If your mortgage rate is 6.75% and the stock market historically returns 10%, the marginal dollar invested in extra down payment earns a guaranteed 6.75% (by reducing interest) vs a potential 10% in equities. The right answer depends on your risk tolerance and time horizon.
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