5% vs 20% Down Payment: Which Is Better?

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

Frequently Asked Questions