The Math Behind Putting Less Than 20% Down

May 19, 2021


A down payment is the amount of cash that you put toward the purchase of your home at the time of purchase. In short, the more you put down, the less you’ll have to borrow from your lender.

Did you know that you could buy a home with a down payment of less than 20%? Lots of people do. In fact, according to the National Association of Realtors, the average down payment among repeat buyers in 2016 was 14%. For first-time homebuyers, the average down payment was just 6%--and it's possible to put down even less. But first, you need to understand some other important numbers and how they add up.

What happens if you can't put down 20%?

If your down payment is less than 20% and you have a conventional loan, your lender will require private mortgage insurance (PMI), an added insurance policy that protects the lender if you can't pay your mortgage.

Other types of loans might require you to buy mortgage insurance as well. Depending on the type of loan and its terms and conditions, the mortgage insurance might be added to your loan amount, thereby also increasing the amount of interest you pay over the life of the loan. In addition, you might have to keep paying mortgage insurance even after you achieve 20% equity in your home.

How much is private mortgage insurance (PMI)?

The cost of PMI varies based on your credit score and your loan-to-value ratio (that is, the amount you owe on your mortgage compared to its value). It also depends on the insurer. You can expect to pay between $30 and $150 per month for every $100,000 borrowed.

How much difference does a down payment make?

Putting down more cash upfront reduces the amount of money you need to borrow. The less you borrow, the lower your monthly payment (principal + interest). To help you understand the math, here's an example of how different down payment amounts affect your monthly mortgage payment, PMI and total monthly expenses over the life of your loan.

A $200,000 Home: 5% Down vs. 20% Down

  5% Down Payment 20% Down Payment
Down Payment Amount

$10,000

$40,000

Loan Amount

$190,000

$160,000

Mortgage Term

30–year fixed rate

30–year fixed rate

Interest Rate

4.5%

4.5%

Monthly Mortgage Payment (Principal + Interest)

$962.70

$810.70

PMI

$80.75*

$0

Total Monthly Payment (Excluding Property Taxes, Insurance)

$1,043.45

$810.70

*Assumes a PMI rate of 0.51% – in this case, applicable with a conventional loan until you have 20% equity in your home or for the life of the loan with a FHA loan.

Can I get a mortgage with less than 20% down?

It is possible to get a mortgage without a 20% down payment if you meet all other eligibility requirements. Freddie Mac's Home Possible® mortgage products let eligible homebuyers put down as little as 3%. A lower down payment upfront means bigger monthly mortgage payments, but it also means becoming a homeowner sooner.

Learn more about Freddie Mac Home Possible Advantage® mortgages.

What to consider

It's always important to weigh the pros and cons regarding your down payment options. Homebuyers who put at least 20% down don't have to pay PMI, and they'll save on interest over the life of the loan.

But if putting 20% down would leave you with no financial cushion (or is simply not possible), it's probably not in your best interest. And if mortgage rates are low at the time you are buying, a lower down payment could allow you to take advantage of those conditions.

A housing counselor and your lender can help you understand the different down payment options available and determine what makes sense for you. Learn who does what and how they can help you find the right home.