Coming up with a down payment for a house is impressive, no matter the amount. You’ve probably heard that you need 20% of the home price saved to get approved for a mortgage, but that’s not necessarily true. A smaller down payment for your house isn’t a deal breaker—you might have other options if you don’t have the full 20% saved.
Private mortgage insurance, or PMI, is usually required if you take out a conventional loan and make a down payment of less than 20%. While you might have a lower up-front cost, know it generally increases your monthly payment while PMI remains on your loan.
The cost of your PMI depends on your loan amount, loan term, down payment, credit score, and even the insurance company you choose, since they’ll be the ones deciding who provides your PMI coverage.
When can PMI be removed?
For conventional loans, you can have the mortgage insurance canceled when the principal balance on the loan drops to 80% of the purchase price or current market value, and it will automatically cancel when the balance drops to 78% of the original loan amount.
For non-conventional loans with PMI, you might have to refinance your loan to have it removed.
A second mortgage, sometimes called a piggyback mortgage or piggyback loan, uses a second loan to supplement your down payment. You’d take the piggyback loan at the same time as the first loan to increase your down payment to 20% and, in most cases, avoid PMI. The “80-10-10" style is the most popular option, but you could also use an “80-5-15" or even an “80-15-5" depending on what you need.
The numbers stand for how much each loan covers and how much you’re paying up-front. For example, the “80-10-10" means that the first mortgage covers 80% of your home purchase, the second covers 10% of your down payment, and the last 10% is your out-of-pocket expense. If you use a second mortgage, you’ll want to keep in mind that these loans could have different interest rates and additional fees when you close.