Last week a student in my prelicensing class asked a question I hear from buyers all the time: why is a 20% down payment treated like the magic number? The short answer is that a 20% down payment gets a conventional loan to 80% loan-to-value, and that is the line where private mortgage insurance goes away. The longer answer is more useful, so class is in session.
What 80% LTV means
Loan-to-value (LTV) is your loan amount divided by the home’s value. Put 20% down on a $450,000 home and you borrow $360,000, which is 80% LTV. Put 5% down and you borrow $427,500, or 95% LTV. Lenders price risk by LTV: the less equity you have on day one, the more the lender stands to lose if something goes wrong.
Why a 20% down payment avoids PMI
On a conventional loan, a down payment under 20% usually means private mortgage insurance (PMI). The key point I make in class: PMI protects the lender, not you. It doesn’t stop a foreclosure if you fall behind. It’s simply the cost of borrowing more than 80% of the home’s value. Hit a 20% down payment and that cost disappears.
What the difference looks like in the Triangle
Using a $450,000 price (the August 2026 median list price in the Raleigh-Cary metro) and the 7.03% average 30-year fixed rate from Freddie Mac’s survey for the week of September 24, 2026:
- 20% down ($90,000): $360,000 loan, about $2,402 a month in principal and interest, no PMI.
- 5% down ($22,500): $427,500 loan, about $2,853 a month in principal and interest, plus PMI.
That’s roughly $450 a month more before PMI, taxes and insurance. Your lender will quote the actual PMI premium, which depends on your credit score, LTV and loan type. If you’re still working out a budget, start with how much house you can afford in Cary.
You don’t have to wait for a 20% down payment
Here’s the part buyers often miss: 20% is a sweet spot, not a requirement. Conventional loans can go well below it, and NC first-time homebuyer programs can help with the down payment. Waiting years to save 20% can cost more than PMI if prices and rents keep rising while you wait.
PMI on a conventional loan also isn’t forever. Under federal rules, you can ask to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, and it must end automatically at 78% if you’re current on payments. FHA loans work differently, so ask your lender how their mortgage insurance ends.
How I’d think about it
- Get a lender to quote both scenarios: 20% down and the down payment you actually have.
- Compare the monthly gap with what you’d keep in savings by putting less down.
- Keep a cash cushion. Draining every dollar to reach a 20% down payment can leave you with nothing for repairs after closing.
Want to run the numbers on a specific home? Book a 15-minute strategy call and I’ll walk through it with you.
Mike Hall, The Triangle Real Estate Professor, is a broker with First Flight Realty in Cary, NC, and an NCREC-approved real estate instructor. This post is general information, not lending advice; talk with a licensed loan officer about your situation.
