The Down Payment Tradeoff Study (2026)
How much does your down payment really change the deal? We modeled identical $400,000 purchases at 3.5%, 10%, and 20% down across FHA and conventional structures, isolating what the down payment itself does to monthly cost, insurance, and equity position.
Methodology
- Model: $400,000 purchase price, 30-year fixed, single borrower profile held constant; only down payment and program vary.
- Rates: typical-range rates as of October 2026 (not quotes), the analysis compares structures, not lenders.
- Mortgage insurance: FHA upfront + annual MIP per current HUD schedule; conventional PMI at representative 620/740 score bands.
- Assumptions disclosed: property taxes, insurance, and HOA held constant; no buydowns or credits.
- Limitations: a model, not advice. Your market, score, and lender pricing change the numbers, run your scenario through our calculators.
Findings
| 3.5% down (FHA) | Lowest cash to close (~$14,000 + costs), but lifetime MIP on most 30-year terms makes it the most expensive long-term structure. Best for: buyers who must preserve cash. |
|---|---|
| 10% down (conventional) | PMI applies but drops at 80% LTV, the crossover point where conventional often beats FHA on total cost. Best for: buyers with moderate savings and 620+ scores. |
| 20% down (conventional) | No mortgage insurance at all; best rate tier. The monthly savings vs. 3.5% down are substantial, but the opportunity cost is $66,000 of locked-up cash. |
| The insurance crossover | FHA’s MIP (lifetime on most loans) vs. conventional PMI (cancellable): above ~10% down, conventional’s droppable PMI usually wins the long game. |
| Equity position | 20% down starts with 5.7x the equity of 3.5% down, meaningful protection if prices dip, and immediate access to HELOC options. |
| The waiting question | Saving from 3.5% to 20% takes years for most buyers; price appreciation during the wait often exceeds the insurance savings. Model both paths. |
FAQ
Is 20% down always best?
No, it is cheapest in financing cost but most expensive in opportunity cost and time. The right answer depends on your market’s price trajectory and your cash position.
How was PMI estimated?
At representative score bands using typical MI company rate cards, actual PMI varies by MI provider and is quoted per file.
Can I reproduce this analysis?
Yes, our affordability, payment, and closing cost calculators use the same math. Methodology above lists every assumption.
Educational research only, not investment advice, not a loan offer. Cite with attribution and a link to this page.
Apply these findings to your deal
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