Stop Waiting for 20% Down: Why PMI Can Help You Buy a Home Sooner
One of the most common myths I hear from first-time homebuyers is this: “We’re going to wait until we have 20% down before we buy a house.”
On paper, it sounds responsible. In reality, it often costs you far more money than it saves. While you’re waiting to save that full 20% down payment, home prices keep rising — and you miss out on thousands of dollars in potential equity growth.
In this article, we’ll walk through simple, real-world math to show why it often makes more sense to buy sooner with a smaller down payment and Private Mortgage Insurance (PMI) than to wait years trying to hit that 20% mark.
The 20% Down Myth (Especially for First-Time Homebuyers)
Many first-time home buyers believe 20% down is required to buy a home. It’s not. In today’s mortgage market, there are loan options with as little as 3%–5% down for qualified buyers.
So where did the 20% idea come from? Mostly from the desire to avoid PMI. It’s true: if you put less than 20% down on a conventional loan, you’ll typically have a monthly PMI cost. But here’s the key: PMI is usually a relatively small cost compared to the amount your home may be appreciating every month.
PMI vs. Appreciation: The Simple Math
Let’s use a simple example. Suppose you’re looking at a home priced at $550,000. If that home appreciates at 4% per year, here’s what that looks like:
- Annual appreciation: $22,000
- Monthly appreciation (on average): about $1,833 per month
Now let’s compare that to PMI. On a loan like this, PMI might be around $150 per month (this will vary based on credit score, down payment, and loan structure — but $150 is a reasonable ballpark).
So you’re faced with a choice:
- Option 1: Buy now, pay about $150 per month in PMI, and potentially gain around $1,800+ per month in appreciation.
- Option 2: Wait to avoid PMI and miss out on that appreciation while prices move higher.
In that scenario, it doesn’t make much sense to give up roughly $1,833 per month in potential equity just to avoid paying around $150 per month for PMI.
The Problem with Waiting to Save 20% Down
Now let’s look at what happens if you decide to wait until you have the full 20% down payment. On a $550,000 home:
- 20% down today = $110,000
Let’s say it takes you three years to save that amount. During those three years, you’re not saving for a $550,000 house anymore, because the price is likely rising. If the home appreciates at 4% per year for three years, the value would grow to about: $618,675.
Now your 20% down payment target isn’t $110,000. It’s:
- New 20% down requirement = $123,735
That’s:
- $13,735 more you need to save for the down payment, and
- $68,675 in appreciation you missed out on, because you weren’t the owner during those three years.
By waiting, the goalpost moved farther away, and the house became more expensive. Meanwhile, someone who bought that same house earlier — even with 5–10% down and PMI — captured all of that price growth as equity.
How Buying Sooner with a Smaller Down Payment Can Help You
Here’s a different way to think about it:
Instead of waiting three years to save $123,735 for 20% down on a future price, you could:
- Buy the house today with, say, 10% down, and
- Let the market appreciation + your monthly principal payments work together to build your equity.
If that $550,000 home grows to roughly $618,675 in three years, you’ve:
- Built equity through appreciation, and
- Paid down your loan balance month by month.
At that point, many homeowners reach around 80% loan-to-value (LTV), which is often where you can either request to cancel PMI or refinance into a no-PMI loan, depending on your situation and the loan program.
In other words, PMI becomes a temporary tool that helps you get into the market sooner so you can benefit from rising values, instead of chasing them.
PMI: Temporary Cost, Long-Term Benefit
For many first-time homebuyers, PMI feels like “wasted money.” But when you look at the full picture, it’s usually the opposite. PMI:
- Is often a relatively small monthly cost compared to potential appreciation.
- Allows you to buy a home with less than 20% down.
- Can usually be removed once you reach about 20% equity, either through payments, appreciation, or both.
By contrast, waiting to buy can:
- Increase the price of the home you want.
- Increase the amount of cash you need for a down payment.
- Reduce the amount of equity you could have built during that time.
Common Questions from First-Time Home Buyers
“Is PMI bad?”
No. PMI is simply a cost that allows you to buy a home with less than 20% down. It protects the lender, but it can greatly benefit you by helping you become a homeowner sooner and start building equity.
“How long will I have to pay PMI?”
That depends on the loan type and how quickly your equity grows. With conventional loans, PMI is typically cancellable once you reach around 20% equity (and automatically drops off at 22%, according to your original amortization schedule). Many buyers remove PMI much sooner than they expect if their home appreciates and they make consistent payments.
“What if home prices stop going up?”
Real estate markets can move in cycles, but over the long term, housing has historically trended upward in most areas. The key is to buy a home that fits your budget, in a location you feel good about, and with a long-term mindset. Even if appreciation slows in the short term, owning a home still allows you to build equity through paying down the loan.
So, Should You Wait for 20% Down?
For many buyers, especially first-time home buyers, the answer is usually: no — waiting for 20% down ends up costing more than it saves.
If you can comfortably afford the monthly payment with a smaller down payment and PMI, buying sooner often gives you a much better chance to:
- Lock in a home at today’s price.
- Start building equity right away.
- Use appreciation to help you reach that 20% equity mark faster.
PMI is temporary. Missed appreciation and higher future prices are not.
Ready to See the Numbers for Your Situation?
Every buyer’s situation is unique. The best way to decide whether to buy now or wait is to run the actual numbers for your budget, your price range, and your market.
If you’re a first-time homebuyer and you’re wondering whether it makes sense to wait until you have 20% down, I’d be happy to walk through a personalized analysis with you and compare:
- Buying now with a smaller down payment and PMI, versus
- Waiting and trying to save 20% while home prices continue to move.
Want to explore your options? Reach out today and let’s take a closer look at the numbers so you can make a confident, informed decision about your next move.