Blog: Do the math: Homebuying now may save a lot

It is a common misconception that a 20 percent down payment is required to buy a home. Advice to wait and save a large down payment is often based on the theory that the cost of mortgage insurance (MI), which is required when you buy with a smaller down payment, should be avoided. This may not be the best advice and is, in fact, not in line with market trends, considering 60 percent of homebuyers buy with a down payment of 6 percent or less, according to the National Association of Realtors.

Yes, you can qualify for a conventional mortgage with a down payment as small as 3 percent of the purchase price. It is also true that you can reduce your monthly mortgage payment by paying for discount points at closing, but that can be 5 or 10 percent of the purchase price — not 20. And because every buyer’s situation is unique, it’s important to do the math. In today’s market, it could take a family earning the national median income up to 20 years to save 20 percent, according to calculations by U.S. Mortgage Insurers using a methodology developed by the Center for Responsible Lending; a lot can change during that time, in the family’s personal finances and in overall mortgage market trends.

How can buying now save you money later?

Consider you want to purchase a $235,000 home. A 5 percent down payment is $11,750 versus $47,000 in cash for 20 percent down. With a 740 credit score at today’s MI rates, your monthly MI payment would be about $110, which is added to your monthly mortgage payment until MI cancels. MI typically cancels after five years; therefore, you will only have this added cost for a short period of time versus waiting an average of 20 years to save for 20 percent.

With home price appreciation, today’s $235,000 home will likely cost more in the years ahead and this will also have an impact on the necessary down payment and length of time required to save for it. There are other variables in the equation too, such as interest rates. As federal rates rise, so too can the costs associated with financing a mortgage. The savings a borrower might calculate today could be altogether negated by waiting even a few more years. Another factor is that rents are on the rise across the nation, leading to a reduced capacity for many would-be homebuyers to save for larger down payments.

If you decide to buy today with a low down payment mortgage option, it is true that MI is an added cost on top of mortgage principal and interest, but keep in mind that it is temporary and goes away. Again, it typically lasts about five years. Private MI can be cancelled once a homeowner builds approximately 20 percent equity in the home through payments or appreciation and automatically terminates for most borrowers once he or she reaches 22 percent equity. And when MI is cancelled, the monthly bill goes down. Importantly, the insurance premiums on an FHA mortgage — the 100 percent taxpayer-backed government version of mortgage insurance — cannot be cancelled for the vast majority of borrowers with FHA mortgages.

So, do the math and let the numbers guide you. There are many online mortgage calculators that can help. Check out to learn more.

Statement: House Tax Reform Legislation

WASHINGTON U.S. Mortgage Insurers (USMI) President and Executive Director Lindsey Johnson issued the following statement on H.R. 1, the “Tax Cuts and Jobs Act,” the comprehensive tax bill released by the U.S. House Ways and Means Committee yesterday:

“USMI is encouraged by efforts in Congress to simplify the current tax code for everyday Americans and to promote economic growth. Comprehensive tax reform holds the promise of allowing Americans to keep more of their hard-earned money, modernize the tax code to help working families and spur economic growth.

“The House Republican proposal represents an important start towards putting the American tax system on a more simple and sustainable path, but USMI is concerned that the current draft excludes the premiums paid by borrowers for mortgage insurance as part of the definition of ‘mortgage interest.’ Since 2007, the deductibility of mortgage insurance premiums has provided helpful tax relief for millions of middle class homeowners with low and moderate incomes. IRS data from 2015 show the mortgage insurance deduction was claimed on 4.1 million tax returns that year—the vast majority of those returns had incomes ranging between $30,000 and $100,000. This is clear evidence that this specific tax deduction should be preserved because it helps make homeownership more affordable for Americans who value and need this help the most. So long as mortgage interest remains tax deductible, as is the case in the House legislation, so too should mortgage insurance.

“We understand comprehensive tax reform is as challenging of an undertaking as it is important—and we know there are difficult choices that have to be made throughout the process. USMI supports many of the stated objectives of tax reform, but is concerned that current and prospective low- and moderate-income homebuyers will lose an important deduction that they have come to build into the cost of their mortgage. Therefore, USMI will continue to work with House and Senate leadership to ensure the final tax reform package includes this important provision aimed at helping bring down borrowing costs for responsible taxpayers who need it most.”


U.S. Mortgage Insurers (USMI) is dedicated to a housing finance system backed by private capital that enables access to housing finance for borrowers while protecting taxpayers. Mortgage insurance offers an effective way to make mortgage credit available to more people. USMI is ready to help build the future of homeownership. Learn more at