Work out the down payment you need, and how it changes your loan and PMI.
Your down payment percentage determines your loan-to-value ratio (LTV). Conventional lenders require private mortgage insurance (PMI) whenever LTV exceeds 80%, because a smaller equity cushion raises the lender's risk. PMI typically costs 0.5–1.5% of the loan amount per year and is added to your monthly payment until the loan balance falls to 80% of the original purchase price. Putting 20% down eliminates this cost entirely.
Loan-to-value ratio
LTV = Loan Amount ÷ Home Price × 100
Monthly PMI
Monthly PMI = Loan Amount × Annual PMI Rate % ÷ 1200
PMI rates are estimates. Actual PMI depends on credit score, lender and program. Closing cost estimates vary widely by state and transaction type.
Fannie Mae and Freddie Mac allow as little as 3% down for qualified first-time buyers. However, you will pay PMI on any conventional loan with less than 20% down, which adds meaningfully to your monthly cost.
Under the Homeowners Protection Act, you can request PMI cancellation when your LTV reaches 80% based on the original purchase price and scheduled payments. Lenders must automatically cancel it at 78% LTV. You may also request earlier cancellation if your home has appreciated substantially.
A larger down payment reduces your loan, lowers your rate (slightly), eliminates PMI below 20%, and builds equity faster. But it also reduces your liquid cash reserves — which matter for repairs, job loss and emergencies. Many financial planners recommend maintaining 3–6 months of expenses as an emergency fund even after closing.
FHA requires only 3.5% down (with a 580+ credit score) but charges its own Mortgage Insurance Premium (MIP) regardless of LTV. Unlike conventional PMI, FHA MIP typically stays for the life of the loan if the down payment is under 10%. Use the FHA Loan Calculator for details.