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Down payment showdown
Same buyer, same house, two down payments. The extra cash the minimum-down buyer keeps is invested; the big-down buyer invests the monthly savings.
CALCULATOR · MONEY · MORTGAGES
Big Down Payment vs Minimum Down Payment
Is 20% down actually worth it — or should you put the minimum down and invest the difference? This comparison prices both paths honestly: the big down payment saves PMI and interest, the minimum down payment keeps cash invested and growing. At the defaults — a $400,000 home, 20% vs 3.5% down, 6.5% rate, 0.5%/yr PMI, 8% investment return, 7 years — the big down payment wins by $10,688. But change the return or the PMI and the winner flips. Run your numbers.
The 20% myth and the real question
Here is the most expensive piece of homebuying folklore in circulation: you do not need 20% down to buy a house. The National Association of Realtors reports the median first-time buyer puts down about 10% — the highest in nearly 40 years, meaning half put down even less. The real minimums are 3% on conventional loans, 3.5% on FHA (with a 580+ score), and 0% on VA and USDA for eligible buyers. Twenty percent matters for exactly one reason: it is the threshold for skipping private mortgage insurance (PMI) on a conventional loan — and PMI is temporary and cancelable, not a life sentence.
So the real question is never “can I buy with less?” — you can. It is “what does the extra down payment buy me, versus investing it?” The big down payment buys a smaller loan, lower payments, no PMI, and less interest. The minimum down payment keeps tens of thousands of dollars invested and compounding. This calculator runs both to the same finish line so you can see which one actually leaves you richer.
The worked example: $400,000, 20% vs 3.5%
Same buyer, same house, seven years. The big-down buyer puts $80,000 down and borrows $320,000 at $2,023/mo. The minimum-down buyer puts $14,000 down, borrows $386,000 at $2,440/mo, and pays $161/mo PMI — $13,510 over the seven years, because the balance never drops below 78% of the price. The minimum-down buyer invests the $66,000 difference at 8%; the big-down buyer invests the $578/mo it saves every month, also at 8%.
| 20% down | 3.5% down | |
|---|---|---|
| Down payment | $80,000 | $14,000 |
| Monthly P&I | $2,023 | $2,440 |
| PMI (7 yrs) | $0 | $13,510 |
| Interest paid (7 yrs) | $139,232 | $167,948 |
| Home equity at yr 7 | $110,668 | $50,993 |
| Investments at yr 7 | $64,126 | $113,112 |
| Net wealth at yr 7 | $174,794 | $164,106 |
The big down payment wins by $10,688. The invested $66,000 grows by $47,112 — but the minimum-down path also pays $28,716 more interest and $13,510 of PMI, while the big-down buyer’s $578/mo of savings compounds to $64,126. At 8% returns against a 6.5% mortgage plus PMI, the guaranteed savings beat the market. Push the return to 15% and the minimum-down path wins by $33,983. Drop PMI to zero and it wins by $7,155. The inputs decide — not the folklore.
Output · formula · meaning
| Output | Formula | What it means |
|---|---|---|
| Monthly P&I | P·r / (1 − (1+r)−360) | The standard 30-year amortization payment on each loan. |
| Monthly PMI | loan × PMI% ÷ 12 | Charged while the balance exceeds 78% of the price — then it stops automatically. |
| Big-path wealth | equity + FV(monthly savings) | Home equity plus the monthly payment savings invested at your return. |
| Minimum-path wealth | equity + FV(down-payment difference) | Home equity plus the upfront cash kept and invested at your return. |
3 things buyers should know
- PMI is temporary — price it that way. On a conventional loan you can request PMI removal at 20% equity and it auto-terminates at 78% of the original value. On a $386,000 loan the PMI in this example runs the full seven years — but on a shorter horizon or with extra principal payments it drops sooner, which shrinks the big-down advantage fast.
- The down payment is not the whole number. Budget 2–5% of the loan for closing costs on top of the down payment, and keep a cash cushion after closing — an emergency fund matters more than squeezing out two extra down-payment points. A 20% down payment that empties your savings is worse than 10% with six months of expenses intact.
- The return assumption is the whole game. At 8% the big down payment wins by $10,688; at 15% the minimum wins by $33,983. Be honest about what the money would actually earn — cash in a 4% savings account is not an 8% stock portfolio — and rerun the comparison with your real number.
Who uses this page
- First-time buyers: whether stretching to 20% is worth delaying the purchase — every month of waiting is rent paid to someone else’s mortgage.
- FHA shoppers: the 3.5%-down path priced honestly, including the PMI-equivalent mortgage insurance FHA charges.
- Cash-heavy buyers: 20% vs 30% vs all-cash — the same math works at any two down-payment sizes.
- Researchers & students: the amortization figures are public math — cite them with the block below.
Accuracy & limitations
Both loans use the same 30-year fixed rate and the home price is held flat — appreciation would favor the minimum-down path (same gain on less cash in), while a rate difference between the two loans would move the math either way. PMI is modeled as a flat annual rate on the original loan while the balance exceeds 78% of the price; real PMI quotes vary by credit score and LTV band. Taxes, insurance, and closing costs are excluded — they hit both paths roughly equally. Treat the verdict as a direction, not a prophecy: rerun it with your actual rate quotes and your honest expected return.
Pricing the purchase itself? Try the mortgage calculator and the how much house can I afford guide.
Cite this calculatorBright Side Kit. “Big vs Minimum Down Payment: Which Wins?.” brightoolbox.com, 2026.
Bright Side Kit. "Big vs Minimum Down Payment: Which Wins?." https://brightoolbox.com/big-down-payment-vs-minimum-down-payment/ Accessed October 23, 2026.Frequently asked questions
Do I really need 20% down to buy a house?
No. The 20% figure is the threshold for skipping PMI on a conventional loan — not a requirement to buy. Real minimums: 3% conventional, 3.5% FHA (580+ credit score), 0% VA and USDA for eligible buyers. The National Association of Realtors reports the median first-time buyer puts down about 10% — meaning half put down even less.
How much does PMI cost per month?
Typically $50–$100 a month, or about 0.3–1.5% of the loan per year — it rises as the down payment shrinks and the credit score falls. On the $386,000 loan in our example at 0.5%/yr, PMI runs $161 a month. The key fact: conventional PMI is temporary — you can request removal at 20% equity and it auto-terminates at 78% of the original value.
Is it better to put 20% down or invest the difference?
It depends on the return you can honestly earn versus the mortgage rate plus PMI. At 8% returns against 6.5% + PMI, the big down payment wins our example by $10,688 over seven years. At 15% returns, the minimum-down path wins by $33,983. With no PMI, the minimum wins by $7,155. There is no universal answer — run the calculator with your real numbers.
Can PMI be removed or canceled?
Yes, on conventional loans. You can request cancellation once you reach 20% equity (based on the original value, or a new appraisal), and the servicer must auto-terminate PMI at 78% of the original value. FHA loans work differently — their mortgage insurance premium can last the life of the loan depending on the down payment — which is one more input this comparison prices for you.
What else do I need saved besides the down payment?
Budget 2–5% of the loan amount for closing costs (lender fees, appraisal, title, prepaid taxes and insurance) — and keep a cash cushion after closing. An emergency fund matters more than squeezing out two extra down-payment points: a 20% down payment that empties your savings is worse than 10% with six months of expenses intact.
Does a bigger down payment get me a better mortgage rate?
Sometimes, marginally. Crossing below 80%, 75%, or 60% loan-to-value can unlock slightly better pricing tiers with some lenders — but the rate difference is usually small. The big, certain wins of a larger down payment are the smaller payment, zero PMI, and less total interest — not a dramatically better rate. Get quotes at both down-payment sizes and compare.