Down payments and mortgage insurance

The key ideas

The 20% rule

With a conventional loan, putting at least 20% down usually avoids private mortgage insurance (PMI). It is a cost-saving target, not a requirement.

What PMI does

PMI protects the lender, not you, if you stop paying. It is added to your monthly payment or paid in other ways your lender offers.

Removing PMI

Under the federal Homeowners Protection Act, you can ask to cancel PMI once your balance reaches 80% of the home's original value, and it generally ends automatically at 78% if you are current on payments.

FHA mortgage insurance

FHA loans have their own mortgage insurance premiums. Depending on your down payment, they can last for many years or the life of the loan, so ask your lender how long yours would apply.

Down payment assistance

Many states, cities and nonprofits offer grants or low-cost second loans for down payments. Check your state housing finance agency.

Questions to ask yourself

• How much would PMI cost per month at different down payment amounts?
• Would waiting a year to save more actually save money, given home prices and rent?
• Do I still have an emergency fund after the down payment and closing costs?

Free help

Your state housing finance agency

Lists first-time buyer and down payment assistance programs in your state.

CFPB on PMI

Plain-English explanation of private mortgage insurance and cancellation rights at consumerfinance.gov.

This guide is general education for US households, based on how things typically work. Rules, rates and program details change and vary by lender and state. It is not individual financial, legal or tax advice, and it isn't an offer of credit. Pennies & More isn't paid by any lender or company mentioned here.