Savings Goal & PMI Impact
Last reviewed: May 2026
A down payment calculator shows how different down payment amounts affect your monthly mortgage payment, total interest, PMI costs, and overall loan economics. The down payment is the largest upfront cost in buying a home — and one of the most consequential financial decisions, since it directly determines your loan amount, monthly payment, whether you pay PMI, and your equity position from day one.1
| Down Payment | On $400K Home | Loan Amount | Monthly P&I (7%) | PMI? | Total Interest (30yr) |
|---|---|---|---|---|---|
| 3% ($12K) | $12,000 | $388,000 | $2,581 | Yes (~$290/mo) | $541K |
| 5% ($20K) | $20,000 | $380,000 | $2,528 | Yes (~$270/mo) | $530K |
| 10% ($40K) | $40,000 | $360,000 | $2,395 | Yes (~$225/mo) | $502K |
| 20% ($80K) | $80,000 | $320,000 | $2,129 | No | $446K |
| 25% ($100K) | $100,000 | $300,000 | $1,996 | No | $419K |
Private Mortgage Insurance is required on conventional loans with less than 20% down. PMI typically costs 0.5–1.5% of the loan amount annually ($150–$450/month on a $360K loan). It protects the lender, not you. PMI can be removed once you reach 20% equity through payments or appreciation — request cancellation at 80% LTV (lenders must auto-cancel at 78%). FHA loans carry mortgage insurance for the entire loan life regardless of equity. VA loans require no PMI at any down payment level.2
20% down eliminates PMI, gives the best rates, and provides immediate equity. But saving $80,000 for a $400K home takes years. 10% down balances upfront cost with reasonable PMI duration. 3–5% down gets you into a home sooner but costs significantly more monthly and in total interest. The right answer depends on your market, savings rate, and opportunity cost — the money not used for a down payment could be invested or kept as emergency reserves.3
A common mistake: putting every available dollar toward the down payment and entering homeownership with zero reserves. After closing, budget for immediate costs: moving ($1,000–$5,000), essential repairs or upgrades ($2,000–$10,000), and furniture/appliances. Maintain 3–6 months of expenses as an emergency fund. The stress of a new mortgage with no financial cushion is one of the top predictors of buyer's remorse. Use our Closing Cost Calculator to see the full upfront picture.4
Lenders scrutinize the source of down payment funds to prevent money laundering and ensure borrowers aren't secretly taking on additional debt. Acceptable sources include savings accounts (with 2-3 months of bank statements showing the balance), investment account liquidation, home sale proceeds, and gift funds from family members (requiring a signed gift letter stating no repayment is expected). Unacceptable sources include undocumented cash deposits, credit card advances, or personal loans — these create hidden liabilities that increase your real debt-to-income ratio. "Seasoned funds" — money that has been in your account for 60+ days — face less scrutiny than large recent deposits. If you receive a $30,000 gift from a parent for your down payment, the lender requires a gift letter, proof of the donor's ability to give (their bank statement), and a paper trail showing the transfer. Planning your down payment funding 3-6 months before applying for a mortgage avoids last-minute documentation headaches that can delay closing.
Lenders scrutinize the source of down payment funds to prevent money laundering and ensure borrowers aren't secretly taking on additional debt. Acceptable sources include savings accounts (with 2-3 months of bank statements showing the balance), investment account liquidation, home sale proceeds, and gift funds from family members (requiring a signed gift letter stating no repayment is expected). Unacceptable sources include undocumented cash deposits, credit card advances, or personal loans — these create hidden liabilities that increase your real debt-to-income ratio. "Seasoned funds" — money that has been in your account for 60+ days — face less scrutiny than large recent deposits. If you receive a $30,000 gift from a parent for your down payment, the lender requires a gift letter, proof of the donor's ability to give (their bank statement), and a paper trail showing the transfer. Planning your down payment funding 3-6 months before applying for a mortgage avoids last-minute documentation headaches that can delay closing.
Lenders scrutinize the source of down payment funds to prevent money laundering and ensure borrowers aren't secretly taking on additional debt. Acceptable sources include savings accounts (with 2-3 months of bank statements showing the balance), investment account liquidation, home sale proceeds, and gift funds from family members (requiring a signed gift letter stating no repayment is expected). Unacceptable sources include undocumented cash deposits, credit card advances, or personal loans — these create hidden liabilities that increase your real debt-to-income ratio. "Seasoned funds" — money that has been in your account for 60+ days — face less scrutiny than large recent deposits. If you receive a $30,000 gift from a parent for your down payment, the lender requires a gift letter, proof of the donor's ability to give (their bank statement), and a paper trail showing the transfer. Planning your down payment funding 3-6 months before applying for a mortgage avoids last-minute documentation headaches that can delay closing.
Lenders scrutinize the source of down payment funds to prevent money laundering and ensure borrowers aren't secretly taking on additional debt. Acceptable sources include savings accounts (with 2-3 months of bank statements showing the balance), investment account liquidation, home sale proceeds, and gift funds from family members (requiring a signed gift letter stating no repayment is expected). Unacceptable sources include undocumented cash deposits, credit card advances, or personal loans — these create hidden liabilities that increase your real debt-to-income ratio. "Seasoned funds" — money that has been in your account for 60+ days — face less scrutiny than large recent deposits. If you receive a $30,000 gift from a parent for your down payment, the lender requires a gift letter, proof of the donor's ability to give (their bank statement), and a paper trail showing the transfer. Planning your down payment funding 3-6 months before applying for a mortgage avoids last-minute documentation headaches that can delay closing.
Lenders scrutinize the source of down payment funds to prevent money laundering and ensure borrowers aren't secretly taking on additional debt. Acceptable sources include savings accounts (with 2-3 months of bank statements showing the balance), investment account liquidation, home sale proceeds, and gift funds from family members (requiring a signed gift letter stating no repayment is expected). Unacceptable sources include undocumented cash deposits, credit card advances, or personal loans — these create hidden liabilities that increase your real debt-to-income ratio. "Seasoned funds" — money that has been in your account for 60+ days — face less scrutiny than large recent deposits. If you receive a $30,000 gift from a parent for your down payment, the lender requires a gift letter, proof of the donor's ability to give (their bank statement), and a paper trail showing the transfer. Planning your down payment funding 3-6 months before applying for a mortgage avoids last-minute documentation headaches that can delay closing.
The down payment is the single largest upfront cost of buying a home, and the amount you choose affects your monthly payment, interest rate, whether you pay private mortgage insurance (PMI), and your total interest cost over the life of the loan1.
20% down: The traditional benchmark. Eliminates private mortgage insurance (PMI), qualifies for the best interest rates, and gives you immediate equity. On a $400,000 home, that's $80,000.
10–19% down: Requires PMI but still offers competitive rates. PMI typically costs 0.5–1% of the loan amount annually — on a $360,000 loan, that's $150–$300/month until you reach 20% equity.
3–5% down: Minimum for conventional loans (3% for first-time buyers via Fannie Mae's HomeReady). FHA requires 3.5% down with a 580+ credit score2. PMI is required and rates are slightly higher.
0% down: Available through VA loans (eligible veterans/active duty) and USDA loans (rural areas, income limits). No PMI on VA loans; USDA has a guarantee fee instead.
On a $400,000 home with a 30-year fixed mortgage at 6.5%3:
20% down ($80,000): Loan = $320,000. Payment = $2,023/month. No PMI. Total interest = $408,274.
10% down ($40,000): Loan = $360,000. Payment = $2,275 + ~$225 PMI = $2,500/month. PMI drops off around year 9. Total interest = $459,308 + ~$24,000 PMI = $483,308.
3.5% down ($14,000): Loan = $386,000. Payment = $2,440 + ~$322 PMI = $2,762/month. Total interest = $492,468 + ~$40,000+ PMI/MIP.
The difference between 20% and 3.5% down: $477/month more and roughly $75,000 more in total cost over the loan's life4.
Some financial advisors argue against putting 20% down if it depletes your savings. The reasoning: if your mortgage rate is 6.5% and the stock market averages 8–10%, investing the difference may yield higher returns than avoiding PMI. This math works on paper but assumes consistent market returns — and doesn't account for the guaranteed savings of lower monthly payments and eliminated PMI. For most buyers, 20% down remains the strongest foundation.
Over 2,000 down payment assistance (DPA) programs exist across the U.S. — state housing agencies, local governments, employer programs, and nonprofit organizations offer grants, forgivable loans, and matched savings plans. Many programs offer $5,000–$25,000 toward down payment and closing costs. Eligibility typically depends on income (often up to 120% of area median income), first-time buyer status, and completing homebuyer education.
At $500/month saved in a high-yield savings account at 5% APY: you'd accumulate $20,000 in approximately 3 years, $40,000 in about 5.5 years, and $80,000 in roughly 10 years. Realistic timelines for a $400,000 home: 3–5 years at aggressive savings rates for a low-down-payment purchase, or 7–10 years for the full 20%. Many buyers start with less down and refinance to remove PMI once they reach 20% equity through payments and appreciation.
Private mortgage insurance protects the lender (not you) if you default. It's required on conventional loans with less than 20% equity. PMI rates typically range from 0.3% to 1.5% of the original loan amount annually, depending on your credit score and down payment percentage. On a $320,000 loan at 0.7%, PMI costs $187/month or $2,240/year.
PMI automatically terminates when your loan balance reaches 78% of the original value. You can request early removal at 80% — which happens sooner if your home has appreciated. Getting a new appraisal showing increased home value can accelerate PMI removal. Once your loan-to-value ratio reaches 80% (whether through payments, appreciation, or both), contact your servicer to request cancellation.
Down payment isn't the only cash you need at closing. Closing costs typically run 2–5% of the purchase price — on a $400,000 home, that's $8,000–$20,000 on top of your down payment. Major closing costs include: origination fees (0.5–1% of loan), appraisal ($400–$700), title insurance ($1,000–$3,000), property taxes and insurance escrow (2–6 months prepaid), and transfer taxes (varies by state). Some closing costs are negotiable, and some sellers will contribute toward closing costs in buyer-friendly markets.
The down payment is a major factor in the rent-vs-buy equation. When you put 20% down on a $400,000 home ($80,000), that money can no longer earn investment returns. At 7% annual returns, $80,000 grows to $160,000 in 10 years in an investment account. Your home would need to appreciate by at least that much (plus cover the additional costs of ownership vs. renting) for buying to break even. In general, buying makes financial sense if you'll stay at least 5–7 years, though the exact break-even point depends on local rents, home prices, interest rates, and your tax situation.
→ 20% eliminates PMI but isn't always optimal. Run the total cost comparison for 10% vs 20% down — sometimes getting in sooner saves more than avoiding PMI.
→ Keep reserves after closing. Don't put every dollar into the down payment. Maintain 3–6 months of expenses plus $5K–$10K for move-in costs.
→ Check assistance programs. Many state and local programs offer grants or forgivable loans for first-time buyers. Free money you may not know about.
→ Factor in closing costs separately. The down payment is not the only upfront cost. Add 2–5% of home price for closing costs on top.
See also: Home Affordability · Closing Costs · Mortgage Calculator · Rent vs Buy