Down Payments and PMI, Explained
How much you really need to put down, what loan-to-value means, and why crossing 20% equity makes private mortgage insurance disappear.
Written by the SmartRates Academy Team · Reviewed by M. Reyes, Financial Systems Architect & Data Analyst
🎯 Key Takeaways
- The down payment is your upfront stake; the rest is financed by the mortgage
- Loan-to-value (LTV) is the loan amount divided by the home's value — lenders watch it closely
- Putting down less than 20% usually triggers PMI, an extra monthly cost that protects the lender
- PMI typically falls off once you reach about 20% equity (80% LTV)
Try it yourself: Mortgage Affordability Calculator →
Test how different down payments change your loan size and monthly cost.
Down payment and loan-to-value
Your is the portion of the purchase price you pay upfront in cash; the mortgage covers the rest. On a $300,000 home, a 10% down payment is $30,000, and you'd borrow $270,000. A bigger down payment means a smaller loan, lower monthly payments, and less total interest.
Lenders express the relationship as , or LTV: the loan amount divided by the home's value. Borrow $270,000 on a $300,000 home and your LTV is 90%. Lower LTV means less risk to the lender — and often a better to you.
What PMI is and why it exists
Private mortgage insurance () is an extra charge, usually added to your monthly payment, that applies when you put down less than 20%. It doesn't protect you — it protects the lender against the higher risk of a low-down-payment loan. PMI commonly runs a few hundred dollars a month depending on the loan size and your credit.
The 20%-down rule of thumb exists precisely to avoid PMI. But putting down less isn't necessarily wrong: buying sooner with PMI can beat waiting years to save 20% while home prices and rent climb. It's a trade-off between upfront cash and ongoing cost.
Getting rid of PMI
The good news is PMI isn't forever. As you pay down the loan (and as the home potentially appreciates), your equity grows and your LTV falls. Once you reach about 20% equity, you can typically request that PMI be removed, and by law it generally must be canceled automatically once the balance reaches a set threshold on the original schedule.
This is one reason extra payments early can pay off twice: they build equity faster, which can end PMI sooner and stop that monthly cost.
Frequently Asked Questions
Do I really need 20% down to buy a home?+
No. Many conventional loans allow much less, and some government-backed programs allow very low down payments. Below 20% you'll usually pay PMI, but you can still buy — it's a cost trade-off, not a hard requirement.
Does PMI ever come back after it's removed?+
On a standard conventional loan, once PMI is properly canceled it doesn't return. Note that some government-backed loans handle mortgage insurance differently and may keep it for the life of the loan.
Is a bigger down payment always better?+
It lowers your loan, payment, and interest, but tying up all your cash in a down payment can leave you without an emergency fund. Balance the down payment against keeping a healthy cash cushion.
⚠️ Mistakes to avoid
✕ Assuming you must put 20% down to buy.
→ You can buy with far less — you just pay PMI until you reach ~20% equity. Sometimes buying sooner beats waiting years to save 20%.
✕ Forgetting to request PMI removal.
→ Once you hit ~20% equity, ask your servicer to cancel PMI. It can drop automatically at 22%, but requesting earlier saves money.
✕ Draining your emergency fund for a bigger down payment.
→ A house comes with surprise costs. Keep a cash cushion even if it means a smaller down payment and some PMI.
✍️ Your turn
Compare down-payment scenarios
For one home price, compare 10% vs. 20% down — payment, PMI, and how long until PMI drops.
- Pick a home price and estimate the loan at 10% and 20% down.
- Note the PMI cost at 10% down.
- Estimate how many years of payments reach 20% equity.
Next recommended lesson
Good Debt vs. Bad Debt →
Debt & Loans