20% Down Payment vs. PMI: Which Costs You Less?

Last updated September 2026

Quick answer

Waiting to save 20% down avoids PMI — but if home prices are rising while you save, your target isn't standing still. On a $400,000 home appreciating 4%/year, someone who buys now with 10% down and pays PMI builds roughly $111,000 in equity in 3.3 years (after ~$6,600 in PMI). Someone who spends that same 3.3 years saving the extra 10% down ends up having paid $88,000 in rent, built $0 equity — and is still $11,000 short of the new, higher 20% target. The math isn't universal, but the "moving target" problem is real.

The example we'll use throughout

A $400,000 home, two paths, same household saving $1,000/month extra:

	Buy now, 10% down	Wait to save 20% down
Action	Buy today: $40,000 down, $360,000 loan, ~$165/mo PMI	Rent and save an additional $40,000 (~40 months at $1,000/mo)
Home price after 3 yrs 4 mos*	$455,840 (owned — appreciation is yours)	$455,840 (still just the market price)
New 20% down payment needed	N/A — already own the home	$91,168
Cash saved toward the goal	N/A	$80,000
Shortfall vs. the new target	N/A	$11,168 short
Rent paid while waiting	$0 (owns instead)	$88,000, builds no equity
PMI paid	~$6,600	$0
Equity after 3 yrs 4 mos	~$111,000	$0 (still renting)

*Assumes 4% annual home price appreciation, a common long-run U.S. average — your local market may run higher, lower, or negative. This is the single assumption the whole comparison hinges on.

The core problem: your target isn't fixed

"Save 20% of $400,000" sounds like a fixed $80,000 goal. It isn't, if the home is appreciating while you save. Every year prices rise 4%, the 20% figure rises with it — and it can rise faster than a typical savings rate can catch up. In our example, the buyer saved a genuinely disciplined $1,000 a month for over three years and still fell behind the target by over $11,000.

Starting equity (down payment):        $40,000
+ Principal paid down (40 payments):   $15,181
+ Home price appreciation (3.3 yrs):   $55,840
− PMI paid over the same period:       −$6,600
= Equity after 3 yrs 4 months:         ~$104,421 net
  (before any selling costs)

Where the equity in "buy now" actually comes from

Most of the gain here is appreciation — which the owner captures and the renter does not, regardless of down payment size. That asymmetry is the real driver, not the PMI line item itself.

When waiting actually wins

This comparison flips in a flat or declining market. If prices don't rise while you save, your 20% target stays put, your $1,000/month reaches it on schedule, and you avoid PMI entirely with no appreciation working against you. The deciding question isn't "is PMI expensive" — it's "can my savings rate outrun my local market's appreciation rate?" In slow-growth or cooling markets, waiting is often the stronger move.

Things to consider

Local market matters more than the national average. A 4% assumption is illustrative — pull actual recent appreciation data for your specific area before deciding.
PMI is temporary; rent is not an investment at all. PMI ends once you hit 78–80% LTV. Rent paid while saving builds no equity in anything, ever.
There's a middle path. Many buyers put down what they have now — avoiding years of rent — then direct extra payments toward principal to reach 80% LTV faster, shrinking the PMI window instead of avoiding it entirely. See How to Remove PMI.
Rate risk cuts both ways too. Waiting also means re-shopping mortgage rates later, which could be better or worse than today's rate — an unknown this comparison doesn't attempt to model.
Your emergency fund still comes first. Don't drain savings to hit 10% down if it leaves you without a cushion — see the trade-offs in How Much Should You Put Down on a House?

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Frequently asked questions

Is it always better to buy with less than 20% down and pay PMI rather than wait?

No. It depends heavily on whether your local home prices are rising faster than you can save. In flat or declining markets, waiting to hit 20% and avoiding PMI entirely is often the stronger move.

Does PMI really cost less than years of rent?

Often, because PMI is a modest add-on to a payment that's building your own equity, while rent builds none. But compare your actual local rent and PMI numbers — this isn't universally true everywhere.

What if I can save faster than my market is appreciating?

Then waiting can work — the deciding factor is your savings rate versus your local appreciation rate, not a fixed national rule.

Is there a middle path between the two extremes?

Yes. Many buyers put down what they currently have, avoid the rent period entirely, and then pay extra toward principal to reach 80% LTV and drop PMI faster than the default schedule.

Does this analysis account for changes in mortgage rates while I wait?

No — it holds the rate constant to isolate the down-payment/appreciation question. Rates could move either direction while you save, which is a separate risk to weigh.

Related guides

What Is PMI (Private Mortgage Insurance)?

What PMI costs by down payment size, how it's calculated, and the two ways it legally comes off your loan.

How Much Should You Put Down on a House?

Every down payment option from 0% to 20%, side by side, with the monthly cost of each.

How Much House Can I Afford?

The 28/36 rule applied to a real budget — and why $500 of monthly debt costs $70,000 of buying power.

How to Remove PMI From Your Mortgage

The 80% and 78% LTV triggers, how extra payments pull them forward, and how to submit the request.

Figures on this page are generated from the same amortization engine that powers the MortMetrix dashboard, using the example loan stated in each table. They are estimates based on a fixed-rate loan at a constant rate and are not your actual loan terms. This is educational information, not financial advice.