If you’re looking to buy a home, you may have been told that a 20% down payment is best, but it’s not required. The average down payment for all homebuyers in 2024 was 18%, the highest in 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 pay 20% of the home price on top of other taxes and costs. The median existing home price reached $404,500 in September 2024, according to the NAR, up 3 percent from last year. A 20% down payment on a home at that price would cost $80,900. And with a mortgage rate of 6.91%, a monthly principal and interest payment would be $2,133.

So putting less than 20% down may sound appealing, but it comes at a cost: you’ll have to pay private mortgage insurance (PMI) until you reach 20% home equity and a loan-to-value ratio (LTV). of 80%. And with a smaller 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 home, you should expect to pay between $30 and $70 a 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 can spend anywhere from $90 to over $200 more per month in PMI. That could make the monthly payment on a $404,500 home (without taxes or insurance) $2,394 — about $261 more per month than if you paid 20% down.

You usually won’t have to pay PMI if you put down at least 20%. The difference in a 20% vs. 18% down payment on a $404,500 home is $8,090. If you pay just 18% down and pay an additional $261 per month in PMI and costs, it would take about 31 months to break even on the $8,090 down payment. Is it worth it?

You could say yes if you think saving $8,090 upfront is a better move. However, it could mean paying more interest over the life of the loan, ultimately costing you more. With 20% down on a $404,500 home and a mortgage rate of 6.91%, you would pay $444,422 in mortgage interest over 30 years. At 18% on the same house at the same rate, you would 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 more per month in PMI, plus $11,000 more in interest over 30 years. And your monthly mortgage payment is higher, with just 18% down.

At the end of the day, it might be worth saving that extra money to put 20% down on a home.

Save even more by shopping mortgage rates

you mortgage interest rate it’s also very influential in how much your mortgage costs you over time. A fraction of a percent can make a difference of thousands of dollars, so it’s worth it look for the best mortgage rate.

Using the examples above, let’s say you put a 20% down payment on a $404,500 home with a 6.91% mortgage rate. You’ll have no PMI and save $11,000 in 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 your total mortgage cost would drop by $38,570.

Getting the best possible interest rate and putting down 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 mentioned above are provided as is via the Zillow Mortgage API, assuming a loan-to-value ratio (LTV). of 80% (ie, a down payment of at least 20%) and an applicant credit score in the range of 680–739. The resulting rates represent what borrowers should expect when they receive 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.