The 20% rule and why it matters
Most conventional lenders will not charge private mortgage insurance (PMI) if you put down 20% of the home's purchase price. That is the standard threshold. Put down less than 20%, and the lender adds PMI to your monthly payment as protection against the risk that you will default. PMI typically costs between 0.5% and 1.5% of your loan amount per year, divided into monthly payments.
The 20% figure is not a law—it is a business decision lenders made decades ago and have stuck with. Some lenders will accept 15% down without PMI. A few will go lower. But 20% is what you will hear most often, and it is the number that opens the door to the best rates and terms.
Whether 20% is actually the right target for you depends on your situation, your timeline, and what else you could do with that money. Putting down 20% is not always the smartest move, even though it avoids PMI.
Key Takeaways
- Twenty percent down is the standard threshold to avoid PMI on a conventional loan, though some lenders accept 15% or lower.
- PMI costs between 0.5% and 1.5% of your loan amount annually and is added to your monthly mortgage payment.
- You can remove PMI once you reach 20% equity through a combination of down payment and principal paydown, but the process and timeline vary by lender.
- Putting down less than 20% and paying PMI for a few years may cost less overall than delaying your purchase to save the extra cash.
- FHA loans and VA loans have different insurance structures and may offer a path to homeownership with a smaller down payment.
What happens if you put down less than 20%
If you put down 10%, 15%, or any amount below 20%, the lender will require you to carry PMI. The insurance premium is calculated as a percentage of the loan amount and rolled into your monthly payment. On a $300,000 home with 10% down ($30,000), your loan is $270,000. At 1% annual PMI, you pay roughly $225 per month in insurance alone, on top of principal, interest, and taxes.
PMI protects the lender, not you. If you stop paying and the house is foreclosed, the insurance reimburses the lender for losses above what the sale of the home covers. You are paying for a product that benefits someone else, which is why lenders push the 20% target so hard.
The catch: PMI is not permanent. Once your equity reaches 20% of the home's current value—through a combination of your down payment and the principal you have paid off—you can request removal. This usually takes 5 to 12 years, depending on your loan term, interest rate, and how quickly you pay down principal. Some loans remove PMI automatically once you hit that threshold; others require you to ask.
When putting down less than 20% still makes sense
Skipping the extra savings to avoid PMI can be the right call if waiting costs you more than the insurance will. If home prices in your area are rising 5% per year and you delay purchase by two years to save an extra $40,000 for a bigger down payment, you may have lost $60,000 in equity growth. PMI for two years might have cost $5,000 to $8,000—a much smaller hit.
The math also shifts if you plan to sell or refinance within a few years. If you are buying a starter home and expect to move in five years, you may never reach the point where PMI removal makes sense. In that case, paying PMI for five years might still cost less than delaying purchase or stretching your budget to hit 20%.
Interest rates matter too. If rates drop significantly after you buy, you can refinance and remove PMI at the same time, cutting years off the timeline. If rates stay high or rise, PMI removal takes longer and costs more in total interest.
Down payment percentages and PMI removal timelines
| Down Payment | Loan Amount (on $300K home) | Estimated PMI Cost (annual, at 1%) | Approximate Years to 20% Equity |
|---|---|---|---|
| 5% | $285,000 | $2,850 | 10–14 years |
| 10% | $270,000 | $2,700 | 8–12 years |
| 15% | $255,000 | $2,550 | 5–9 years |
| 20% | $240,000 | $0 | N/A (no PMI) |
These timelines assume a 30-year loan at a 7% interest rate and no extra principal payments. Making larger monthly payments or paying a lump sum toward principal shortens the timeline significantly. A refinance at a lower rate also speeds up equity buildup.
FHA and VA loans: alternatives to the 20% rule
If 20% down feels out of reach, FHA loans allow down payments as low as 3.5%. Instead of PMI, FHA loans carry mortgage insurance premiums (MIP)—an upfront payment plus annual fees. The upfront MIP is typically 1.75% of the loan amount, paid at closing or rolled into the loan. Annual MIP ranges from 0.55% to 0.8% depending on the loan term and down payment size.
FHA loans are often cheaper than conventional loans with PMI if your down payment is below 10%, but the math flips around 15% down. At that point, a conventional loan with PMI usually costs less over time.
VA loans, available to military members and veterans, do not require PMI or MIP at all, even with zero down. Instead, borrowers pay a one-time funding fee (0.5% to 3.6% of the loan, depending on down payment and military status). For may be able to access borrowers, VA loans are often the cheapest path to homeownership.
How to remove PMI once you reach 20% equity
Reaching 20% equity does not automatically remove PMI. You have to request it. Contact your loan servicer and ask about PMI removal. They will verify your current home value and the principal balance on your loan. If your equity is at or above 20%, they will process the removal, usually within 30 to 45 days.
Some loans remove PMI automatically once you reach the midpoint of your loan term (15 years on a 30-year loan), but only if you have made all payments on time. Do not count on automatic removal—request it yourself as soon as you hit 20% equity.
Home value matters. If your home has appreciated, you may reach 20% equity faster than your amortization schedule suggests. If values have dropped, you may need to wait longer or pay down principal faster. A home appraisal costs $300 to $500 but can prove you have reached the threshold and speed up removal.
Frequently Asked Questions
Can I put down 19% and avoid PMI?
No. PMI is required on any down payment below 20% on a conventional loan. Some lenders have programs that accept 15% down without PMI, but these are exceptions and usually come with higher interest rates or stricter credit requirements. Ask your lender directly about their specific thresholds.
Does PMI ever go away on its own?
On some loans, yes. If you reach the midpoint of your loan term (15 years on a 30-year mortgage) and have made all payments on time, PMI may be removed automatically. However, many loans do not have this feature. You should request removal yourself once you reach 20% equity rather than waiting.
What if my home value drops after I buy?
If your home loses value, your equity drops with it, and PMI removal takes longer. You will need to wait until your principal paydown plus any future appreciation brings you back to 20% equity. Refinancing at a lower rate can help you build equity faster, but it does not change the equity threshold itself.
Is it better to put down 20% or invest the extra money instead?
That depends on investment returns and your risk tolerance. If you can earn more in the stock market than PMI costs, investing the extra cash may come out ahead. But this assumes consistent market returns and discipline—many people find it easier to build equity through a mortgage than through investing. A financial advisor can help you model both scenarios.
Do FHA loans have PMI?
FHA loans do not have PMI; they have mortgage insurance premiums (MIP) instead. The structure is different—an upfront payment plus annual fees—but the cost is often lower than PMI if your down payment is very small (under 10%). Compare both options before deciding.