The conventional wisdom is clear: put 20% down to avoid PMI and get a better deal. But "better deal" is doing a lot of work in that sentence. How much does the 20% threshold actually save you? And is it worth delaying homeownership to get there?
The answer is more nuanced than most people think. A 20% down payment saves you real money on mortgage insurance and monthly payments — but it also ties up a large amount of cash that could be earning returns elsewhere. Let's break down the actual numbers.
Here's how four down payment scenarios compare on a $400,000 home with a 30-year fixed mortgage at 6.75%:
| Down Payment | 5% ($20K) | 10% ($40K) | 15% ($60K) | 20% ($80K) |
|---|---|---|---|---|
| Loan amount | $380,000 | $360,000 | $340,000 | $320,000 |
| Monthly P&I | $2,464 | $2,335 | $2,205 | $2,076 |
| Monthly PMI | $174 | $165 | $156 | $0 |
| Total monthly | $2,638 | $2,500 | $2,361 | $2,076 |
| PMI duration | ~9 years | ~6 years | ~3 years | None |
| Total PMI paid | ~$18,800 | ~$11,900 | ~$5,600 | $0 |
| Total interest (30yr) | $507,000 | $481,000 | $454,000 | $427,000 |
Going from 5% to 20% down saves you roughly $562 per month and about $99,000 in total interest and PMI over the life of the loan. That's a significant difference.
But here's what this table doesn't show: the opportunity cost of the extra $60,000 you needed to go from 5% to 20% down.
To put 20% down instead of 5% on a $400,000 home, you need an extra $60,000 in cash at closing. That $60,000 has to come from somewhere — typically savings that could have been invested.
If you invested that $60,000 in a diversified index fund earning a historical average of 7% annually, here's what it would grow to:
The paradox: Putting 20% down saves you ~$99,000 in interest and PMI over 30 years. But investing that extra $60,000 instead could generate ~$396,000 in returns over the same period. The math increasingly favors a smaller down payment the longer your time horizon — as long as you actually invest the difference.
This is the critical assumption. The opportunity cost argument only works if you invest the money you didn't put into the house. If the alternative to a larger down payment is spending the cash or leaving it in a savings account at 4%, the calculus changes dramatically.
A larger down payment is the better move when:
Putting less than 20% down can be the smarter financial move when:
Our Rent vs. Buy calculator adjusts for down payment size, PMI, and shows the impact on your breakeven timeline. The Compare Mortgages tool lets you model multiple down payment scenarios side by side.
Run the numbers free →One factor that rarely gets discussed: the cost of renting while you save. If your rent is $2,200/month and it takes you 3 additional years to save from 10% to 20%, you'll pay $79,200 in rent during that period — money that builds zero equity.
Meanwhile, if you'd bought at 10% down three years ago, you'd have:
The total cost of waiting: roughly $55,000 in lost equity and appreciation, plus the PMI you avoided ($5,900) — a net loss of about $49,000 by waiting.
Putting 15% down is increasingly popular and often hits the sweet spot. You get a meaningfully lower payment than 5% or 10% down, PMI duration is only about 3 years (often less with appreciation), and you keep $20,000 more in liquid savings compared to 20% down.
On our $400,000 example, 15% down means $5,600 in total PMI over 3 years. That's a modest price to keep $20,000 available for emergencies, investments, or home improvements.
A 20% down payment saves you real money — roughly $99,000 in interest and PMI on a $400,000 home. But it requires $60,000 more cash at closing, delays homeownership, and has a meaningful opportunity cost if that cash would otherwise be invested.
For most buyers, the right answer is somewhere between 10% and 20%, depending on your savings rate, investment discipline, local home price trends, and risk tolerance. The worst approach is to fixate on 20% as the only acceptable option without running the full cost comparison. Use a calculator with real numbers — including PMI, opportunity cost, and appreciation — to find the down payment that actually costs you the least over your expected ownership period.