What each tier costs on a $400,000 home (6.5%, 30-yr)
| Down | Cash for down | P&I / mo | Est. PMI / mo |
|---|---|---|---|
| 3% | $12,000 | $2,452 | $162 |
| 3.5% | $14,000 | $2,440 | $161 |
| 5% | $20,000 | $2,402 | $158 |
| 10% | $40,000 | $2,275 | $150 |
| 20% | $80,000 | $2,023 | — |
Read the spread: 3.5% vs 20% down is $66,000 of cash for about $578/month of payment. Whether that trade is good depends entirely on what else the cash could do — retire 24% card debt, fund emergencies, or just exist as a buffer.
Where the 20% myth came from — and when it's still right
20% was the historical standard before mortgage insurance existed, and it still buys three real things: no PMI, a slightly better rate tier, and instant equity cushion against price dips. If you HAVE 20% plus closing costs plus 3–6 months of expenses, it's usually the right call. The myth is that you must wait for it: saving toward 20% in a market appreciating 4% a year on a $400,000 home means chasing a target that moves $3,200 a year while rents continue. The rent-vs-buy calculator prices that wait honestly.
Smaller down payments, used well
- Keep PMI temporary: it auto-cancels at 78% LTV, and extra payments or appreciation can kill it in a few years (PMI calculator).
- Watch the payment ratio, not the ego: qualify comfortably under the 28/36 rule with the smaller down payment (affordability calculator).
- Gift funds and assistance programs count: documented gifts are allowed by every major program, and state HFAs run grant/forgivable-second programs most buyers never check.
- Don't drain to zero: the buyer with 5% down and a funded emergency account is structurally safer than the one with 20% down and $800 left.