PMI vs a larger down payment: which wins?

The three questions that decide this

1. How long will it take you to save the extra 15%? If it's 12–24 months, home appreciation and rent paid usually eat all your savings.

2. What's your PMI premium? At 720+ FICO on a $400K home, PMI runs $100–$140/mo. At 660 FICO, it's $180–$250/mo. Higher PMI shifts the math toward more down payment.

3. What else could the cash do? If you'd invest the difference at 7%+, smaller down usually wins mathematically. If it'd sit in a savings account, larger down usually wins.

The break-even math on $400K

Assume 720 FICO, 5% down = $20K, PMI = $120/mo. Alternative: wait 18 months, save $60K more, total 20% down.

During the 18-month wait: - Rent paid: ~$32,400 ($1,800/mo) - Home appreciates ~5% ($20,000 higher price) - Rate could move ±0.5% - Missed equity build in the home you would have bought

Buying now with 5% down: - PMI cost over 18 months: $2,160 - Extra rate cost: ~$1,600 - Total extra: ~$3,760

Waiting 18 months costs $50,000+ in most markets. Buying now with PMI almost always wins if the home price is stable or rising.

How to get PMI off faster

1. Request removal at 80% LTV with an appraisal proving current value. Auto-removal is at 78% based on original amortization; requesting early can save 12–24 months.

2. Make extra principal payments early in the loan when they have maximum impact.

3. Get a new appraisal after 2 years if your area has appreciated significantly. Some lenders accept a Broker Price Opinion instead.

4. Refinance if rates drop and you now have 20%+ equity. Even a small rate improvement pays for closing.