If you’re looking to buy a home, you may have been told that it’s best to make a 20% down payment, but this isn’t necessary. The average down payment for all home buyers in 2024 is 18%, a 20-year high, according to a new report from the National Association of Realtors (NAR).

In today’s expensive housing market The average mortgage rate on a 30-year loan is 6.91%For some buyers, paying 20% ​​of the home price on top of other fees and expenses may not make sense. According to NAR, the median existing home price reached $404,500 in September 2024, up 3% from last year. A 20 percent down payment for a home at this price would cost $80,900. And with a 6.91% mortgage rate, the monthly principal and interest mortgage payment would be $2,133.

So it may be tempting to put down less than 20%, but it comes with a price: You’ll have to pay private mortgage insurance (PMI) Until you reach 20% equity in the house and loan-to-value (LTV) ratio 80%. With a lower down payment, you’ll have a higher loan balance and monthly mortgage payment; This means more money will be paid in interest over the life of the loan. So what should you do?

Get Rid of PMI and Save Money with 20% Discount

According to Freddie Mac, if you put less than 20 percent down on a home, you should expect to pay $30 to $70 per month for every $100,000 you borrow. Using the example above, if you only make an 18% down payment, your mortgage balance would be $331,690, you could spend between $90 and $200 extra per month in PMI. That could mean a monthly payment on a $404,500 home is $2,394 (before taxes or insurance); That’s about $261 more per month than what you pay for a 20% down payment.

If you make at least a 20% down payment, you usually don’t have to pay PMI. The difference between a 20% and 18% down payment on a $404,500 home is $8,090. By paying just 18% down and paying an additional $261 per month in PMI and costs, it will take approximately 31 months to recoup not paying $8,090 down. Is it worth it?

If you think saving $8,090 up front is a better move, you can say yes. But this could mean paying more interest over the life of the loan, ultimately costing you more. With 20% down and a 6.91% mortgage rate on a $404,500 home, you’d pay $444,422 in mortgage interest over 30 years. For the same home at 18% at the same rate, you’d pay $455,533 in interest over the life of the loan. That’s an $11,000 difference in interest over the life of the loan.

So, while you’ll save $8,090 by putting down an 18% down payment instead of 20%, you’ll still have to pay $261 extra per month in PMI, plus $11,000 more in interest over 30 years. And your monthly mortgage payment is higher with only 18% down payment.

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

Save Even More by Shopping for Mortgage Rates

Your mortgage interest rate It also has a huge impact on how much your mortgage will cost you over time. Even a tiny fraction of a percentage can make a difference of thousands of dollars; shop for the best mortgage rate.

Using the examples above, let’s say you make 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 lock in a rate of 6.41% (50 basis points lower). Your monthly payment will drop by over $100, dropping the total cost of the mortgage 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 referenced above are provided as is through the Zillow Mortgage API. loan-to-value (LTV) ratio 80% (i.e. at least 20% down payment) and the applicant’s credit score is in the range of 680-739. The resulting rates represent what borrowers should expect when receiving quotes from lenders based on their qualifications; these rates may vary from advertised teaser prices. © Zillow, Inc., 2024. Use subject to Zillow Terms of Use.