First-Home Q&A · 7 of 13
The down payment percentage is the thing first-time buyers get most confused about.
The trap in “save 20% first”
Most first-time buyer programs work with 3 to 5 percent down. Yet many people wait until they have the full 20% because “PMI is a waste.”
The problem is how long 20% takes. During those years rent keeps going out, and prices do not wait. Whether buying now with a small down payment beats renting for several more years cannot be decided by whether PMI applies.
PMI applies — but that is not the end of it
With 5% down the lender’s risk is higher, so private mortgage insurance is normal on a conventional loan. But a first-time program like ONE Mortgage is structured to waive that PMI. The same 5% down produces a different monthly total on a conventional loan than on ONE Mortgage.
Add MassHousing’s down payment assistance on top and the cash leaving your account today falls again. Program terms are in Massachusetts first-time buyer programs; amounts and deadlines change with each round.
Compare total cost, not the percentage
Set 20% against 5% and the 5% looks like the losing side. What you actually have to compare is three things:
- Cash out today — the down payment, and how much an assistance program reduces it
- The monthly payment — with PMI included, or waived as under ONE Mortgage
- The cost of waiting — the rent you pay while saving to 20%, and the price movement meanwhile
Only with all three together does “buy now with less down, or save more and buy later” become a number. ONE Mortgage terms and PMI waivers differ between lenders, so it has to be run on your income and your price range.
In short
Down payments compare by total cost, not by percentage. I will run the three items with your numbers.
Questions
Common questions
Does 5% down always mean PMI?
On a conventional loan, less than 20% down usually means private mortgage insurance, because the lender's risk is higher. But first-time buyer programs such as ONE Mortgage are built to waive that PMI, so the same 5% down can produce a different monthly total depending on the product. Eligibility depends on the lender and your income.
Why can waiting to save 20% cost more?
Because during the years it takes, rent keeps going out and prices do not stand still. Whether buying now with a smaller down payment beats renting for several more years cannot be decided by PMI alone — it takes the cash out today, the monthly total, and the rent and price movement while you wait, all in one calculation.
Sources
Written by Diana Yeji Kim — REALTOR® at eXp Realty, serving Greater Boston in English, Korean, and Japanese.
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