5% vs 20% Down Payment: Which Is Better?
Should you put 5% down and buy now, or wait to save 20%? The right answer depends on home prices, your savings rate, and your timeline. Here's the math.
Quick answer
20% down avoids PMI, lowers your monthly cost, and saves tens of thousands of dollars in interest. 5% down lets you buy faster but costs more month-to-month and over the life of the loan.
Side-by-side: $350,000 home
Assuming a 30-year fixed at 6.5%:
- 5% down ($17,500): loan $332,500, P&I ~$2,102/mo, PMI ~$165/mo. Total ~$2,267 (excluding taxes/insurance).
- 20% down ($70,000): loan $280,000, P&I ~$1,770/mo, no PMI. Total ~$1,770.
- Difference: $497/month, or about $5,964/year more with 5% down.
- Over 30 years: roughly $60K more total interest with 5% down.
How long would it take to save the difference?
If you can save $1,000/month, going from 5% to 20% on a $350K home means saving an extra $52,500. That's about 4.4 years of extra saving.
During those 4.4 years, home prices may rise. If they appreciate 4%/year, the same house costs ~$415K. Your 20% down on the new price ($83K) is now $30K more than your original 20% target. Waiting can backfire in rising markets.
When 5% down makes sense
- You're in a fast-rising housing market where appreciation outpaces savings.
- Renting costs nearly as much as your future mortgage payment.
- You plan to stay in the home long enough that PMI drops naturally (around year 7–10).
- Stable income and an emergency fund are already in place.
When 20% down makes sense
- You can save the gap in under 2–3 years.
- Home prices in your area are flat or falling.
- Tight cash flow — the lower payment matters month to month.
- You want maximum equity from day one.
Use the calculator
Compare 5% vs 20% down for your home
See the exact monthly and lifetime cost difference.
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Frequently Asked Questions
When does PMI drop off?
Conventional PMI automatically drops at 78% LTV (you have 22% equity). You can request removal at 80% LTV. FHA MIP often stays for the life of the loan unless you put 10%+ down.
Can I avoid PMI without 20% down?
Yes — through a piggyback loan (80/10/10), VA loans, or some lender-paid PMI programs (which raise your interest rate slightly).
Is 10% down a good middle ground?
Often yes — you still pay PMI but at a lower rate, and your monthly payment is much lower than 5% down.
Does a bigger down payment lower my interest rate?
Often slightly — lenders see more equity as less risk. Going from 5% to 20% might shave 0.125–0.25% off your rate.