Down Payment Save Time: Rent Longer vs Buy Now With PMI
Example: Target home price today: 420000 $ · Current down payment savings: 25000 $ · Monthly amount you can save: 1500 $ · Savings account APY: 4.5 % · Current monthly rent: 1900 $ · Mortgage rate: 6.75 %/yr · Expected annual home price appreciation: 3.5 %/yr · PMI rate if you buy now at 5% down: 0.75 %/yr
| Rent paid while saving for 20% | $66,500 |
| Months to save 20% down | 35 |
| Estimated home price when you reach 20% | $464,328 |
| Total PMI cost if you buy now at 5% down | $34,663 |
| Extra lifetime interest from smaller down payment | $36,761 |
Worked example
Targeting a $420,000 home with $25,000 saved: at $1,500/month in savings and 4.5% APY, reaching 20% ($84,000) takes about 32 months. At 3.5% appreciation, the home costs roughly $469,000 by then. Rent paid while saving: $60,800. Meanwhile buying today at 5% down with PMI at 0.75% costs about $19,200 in PMI before reaching 78% LTV (about 107 months). In this scenario, the rent-while-saving cost exceeds the PMI penalty — buying now with PMI wins financially, even before considering equity built.
Frequently asked questions
Does waiting always cost more because of price appreciation?
Not always. In flat or declining markets, waiting to save a larger down payment reduces your loan size and eliminates PMI, often coming out ahead. The appreciation assumption is the most sensitive variable — small changes in expected price growth swing the outcome significantly.
What down payment is actually required to buy a home?
FHA loans allow 3.5% down with a 580+ credit score. Conventional loans start at 3% down (with PMI). VA and USDA loans allow 0% down for eligible buyers. The 20% threshold eliminates PMI on conventional loans and historically signaled creditworthiness, but it is not a legal requirement.
How long does PMI last if I buy with 5% down?
Under the Homeowners Protection Act, PMI automatically cancels when your loan balance reaches 78% of the original purchase price. You can request cancellation at 80% with a good payment history. At normal amortization on a 30-year loan with 5% down, that typically takes 8–11 years without extra payments.