Key Takeaways
- The median down payment on a house in the U.S. is now 18%, the highest in over 20 years, according to a recent report.
- Putting less than 20% down on a house will save you some money in the short term, but it will probably cost you more due to private mortgage insurance (PMI).
- If you’re in the market to buy a house, consider the trade-offs between putting less than 20% down and paying more upfront, plus how mortgage rates could impact your payments.
If you’re looking to buy a house, you may have been told that a 20% down payment is best, but it’s not required. The median down payment for all homebuyers in 2024 was 18%, the highest in over 20 years, according to a new report from the National Association of Realtors (NAR).
In today’s expensive housing market, where the average mortgage rate on a 30-year loan is 6.91%, it may not make sense for some buyers to shell out 20% of the home’s price on top of other fees and costs. The median existing home price reached $404,500 in September 2024, according to the NAR, up 3% from last year. A 20% down payment for a home at that price would cost $80,900. And with a 6.91% mortgage rate, a monthly principal-and-interest mortgage payment would be $2,133.
So putting less than 20% down may sound enticing, but it comes at a cost: You’ll have to pay private mortgage insurance (PMI) until you reach 20% equity in the home and a loan-to-value (LTV) ratio of 80%. And with a lower down payment, you’ll have a higher loan balance and monthly mortgage payment, which also means more money paid in interest over the life of the loan. So, what should you do?
Avoid PMI With 20% Down and Save
If you put less than 20% down on a house, you should expect to pay $30 and $70 per month for every $100,000 you borrow, according to Freddie Mac. Using the example above, if you pay just 18% down, your home loan balance would be $331,690, you could spend anywhere from $90 to over $200 extra per month in PMI. That could make your monthly payment on a $404,500 house $2,394 (without taxes or insurance)—about $261 more per month than if you paid 20% down.
You typically won’t have to pay PMI if you make a down payment of at least 20%. The difference in a 20% vs. 18% down payment on a $404,500 house is $8,090. By only paying 18% down and paying an additional $261 per month in PMI and costs, it would take about 31 months to break even from not paying the $8,090 upfront. Is that worth it?
You might say yes if you think saving $8,090 upfront is a better move. However, it could mean paying more in interest over the life of the loan, ultimately costing you more. With 20% down on a $404,500 house and a 6.91% mortgage rate, you’d pay $444,422 in mortgage interest over 30 years. With 18% on that same house at the same rate, you’d pay $455,533 in interest over the life of the loan. That’s a difference of $11,000 in interest over the life of the loan.
So, while you save $8,090 upfront by putting 18% down instead of 20%, you have to pay $261 extra per month in PMI, plus $11,000 more in interest over the course of 30 years. And your monthly mortgage payment is higher with just 18% down.
At the end of the day, it might be worth saving up that extra money to put 20% down on a house.
Save Even More by Shopping for Mortgage Rates
Your mortgage’s interest rate is also highly influential in how much your mortgage costs you over time. A fraction of a percentage can make the difference of thousands of dollars, so it pays to shop around for the very best mortgage rate.
Using the examples above, let’s say you provide a 20% down payment on a $404,500 house with a 6.91% mortgage rate. You’ll have no PMI and save $11,000 on interest paid over 30 years.
But let’s say you locked in a rate of 6.41%—50 basis points lower. Your monthly payment would drop by over $100, and the mortgage’s total cost would drop by $38,570.
Getting the best interest rate possible and making a 20% down payment can save you tens of thousands on your mortgage over time.
How We Track Mortgage Rates
The national and state averages cited above are provided as is via the Zillow Mortgage API, assuming a loan-to-value (LTV) ratio of 80% (i.e., a down payment of at least 20%) and an applicant credit score in the 680–739 range. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications, which may vary from advertised teaser rates. © Zillow, Inc., 2024. Use is subject to the Zillow Terms of Use.