The True Cost of Putting Less Than 20% Down on a Home

Travis Hadden
Feb 20
2 min read

Updated: Feb 23

Learn how a smaller down payment can cost you thousands in extra mortgage insurance and delay your path to financial freedom.

Why Saving 20% Matters

If you're buying a home, you've likely heard that putting 20% down is a smart financial choice because it helps you avoid Private Mortgage Insurance (PMI).

For many buyers, saving 20% isn’t realistic, especially with rising home prices. That’s why many people choose a lower down payment and accept PMI in order to buy a home sooner.

While this might seem like a reasonable trade-off, PMI can add up to tens of thousands of dollars, making your home far more expensive than expected.

How Much PMI Really Costs

PMI is an extra fee added to your mortgage payment if you put down less than 20%, and you'll keep paying it until you reach 20% equity, which can take years.

Let's look at an example:

If you put down just 5% on a $500,000 home, you could end up paying nearly $51,000 in PMI alone.

Even worse, it could take nearly 11 years before you reach 20% equity and can finally remove this extra cost from your monthly payments.

The Price of Putting Down Less Than 20% on Your House

The Opportunity Cost of PMI

PMI isn’t just an extra fee, it’s money you could have invested instead.

If you had invested those PMI payments at a 6% annual return, they could have grown by an additional $20,000 over the same period.

The Growth Potential of Investing Your PMI Savings

How to Avoid or Minimize PMI

If a 20% down payment isn’t an option, here are ways to reduce PMI costs:

Put down at least 10-15%. This shortens the time you’ll pay PMI and frees up money for other financial planning.

Make extra mortgage payments. This speeds up reaching 20% equity, allowing you to remove PMI sooner.

Monitor your home’s value. If it increases, you may hit 20% equity faster and request PMI removal early.

Final Thoughts

While buying sooner with a lower down payment might seem appealing, the long-term costs can add up quickly.

The pressure to buy a home can be overwhelming, but smarter decision making now can set you up for financial freedom down the road.

When it comes to your financial future, every decision matters. Instead of paying thousands in PMI, think about the impact of investing that money and letting it grow.

For more insights on smarter financial decision making, check out our other blog posts.