Should You Buy Now on a Conventional Loan With PMI or Wait to Save?

The Quick Read: Buy now if you are stable, your reserves stay intact after closing, and the monthly mortgage insurance line fits your budget. You do not need 20% down for a conventional loan, and PMI does not last forever. Waiting only wins when a specific gap costs you something: a pricing tier you can reach, reserves you would otherwise drain, or a budget that only works if you ignore PMI.

The rest of this piece shows how to test that on your own file. It covers how PMI works, how it ends, when waiting is the better call, and what to ask a lender before you decide.

What Does PMI Actually Do?

PMI is private mortgage insurance. It protects the lender, not you, if a conventional loan with a small down payment goes into default. It is not homeowners insurance, which covers the house. You pay PMI as part of the monthly payment, and it is required on conventional loans above 80% loan-to-value (LTV).

Across the wholesale programs Lendmire places files with, the premium varies with credit score, down payment, and loan size. Published typical annual premiums run roughly 0.58% to 1.86% of the balance. That is a range, not a quote, and your own file lands somewhere inside or outside it. A better score and a larger down payment push the cost down.

Is 20% Down a Requirement?

Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

No. Twenty percent is the line where PMI stops being required, not the minimum to buy. The CFPB says most buyers need at least 3% down, many loan types and lenders ask for 5% or more, and you often save at 10% down and save the most at 20%.

Here is the conventional envelope on a home you will live in:

Fannie Mae’s Eligibility Matrix sets these limits by occupancy, units, and transaction type. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

A first-time buyer here means someone with no ownership interest in a residence in the previous three years. HomeReady and Home Possible have an income limit of 80% of area median income. They do not carry the same first-time-buyer test as the standard 97% option.

How Does PMI End?

PMI is not permanent on a conventional loan. Two dates matter, and they work differently.

1. At 80% of the original value, you ask. You request cancellation in writing. You need a good payment history, no junior liens, and no decline in the home’s value. The servicer may ask for an appraisal as evidence.

2. At 78%, the servicer must act. Under the Homeowners Protection Act, the servicer terminates PMI automatically when your balance is first scheduled to reach 78% of the original value. You must be current on that date, or termination waits until you are.

The CFPB’s PMI removal guidance lays out both steps, and ending PMI lowers your monthly costs. Plenty of people assume it drops off automatically at 80%. It does not. You have to ask.

There are exceptions. Some high-risk loans fall outside the 80% and 78% rules, per the CFPB’s examination procedures. Lender-paid single-premium coverage generally cannot be cancelled, because the cost is usually built into the note rate or an origination charge instead. Ask which structure you are being offered.

Appreciation can also end PMI sooner. The servicer checks current value, and the rules add conditions around how long you have held the loan, your payment history, and any improvements. A drop in value can sink the request. Treat early removal as a possible bonus, not the plan.

What Does Waiting Really Cost?

Waiting costs you rent, and it costs you whatever happens to prices while you save. Nobody can forecast either. No sourced figure supports a prediction of price appreciation, so the honest approach is to test your own plan against a flat market and a rising one.

Waiting also has a hidden side. Cash you put into a home is hard to get back out. Per the CFPB, you can only reach it by selling or borrowing against the home. A bigger down payment ties up more of your money. A smaller one keeps it liquid.

Two more points shift the math:

• Pricing tiers. Lenders usually price in 5% down-payment increments, so putting down just under a tier threshold usually earns no savings. If you are 1% short of the next tier, a few months of saving may pay off. If you are 4% short, probably not.
• Reserves. A larger down payment that leaves you with an empty account is a worse position than a smaller one with a cushion. The first surprise repair then goes on a credit card.

Worked Scenario: Two Buyers, Same Home

Run the comparison on two hypothetical buyers looking at the same house. The inputs below are modeled assumptions, not market data.

Buyer one has steady income, a good score, and enough saved for 5% down plus closing costs, with several months of reserves left. A 95% LTV loan is available, and the budget works with PMI included. Rent is eating into savings every month. Buying now is a reasonable call here. PMI is a cost with an end date, and the buyer can ask for removal at 80%. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Buyer two can reach 5% down only by emptying savings. The budget works only if taxes, insurance, and maintenance are low estimates, and PMI is an afterthought. Waiting makes more sense here, though the reason is thin reserves and a tight budget, not the 20% mark. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

The test is the same for both: does the plan survive a bad month? If yes, PMI is a manageable line. If no, PMI is not the problem.

When Buying Now Wins

Buying now tends to be the stronger move when most of these are true:

• Your income is stable and you plan to stay several years.
• You qualify above 80% LTV and still keep real reserves after closing.
• The full payment, PMI, taxes, and insurance included, fits your budget without strain.
• Saving the next 5% would take a long time relative to how fast you can build equity through payments.
• Your credit is solid enough that PMI is reasonably priced for your file. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

When Waiting Wins

Waiting has a real case in these situations:

• A short horizon. If you may sell in a couple of years, you give up less by renting, because you may not build enough equity to cover buying and selling costs.
• Thin reserves. Closing with almost nothing left is a risk that PMI math does not capture.
• A tight budget. If the payment only works when PMI is ignored, the plan is fragile.
• A reachable pricing tier. If a modest amount of saving moves you into a better down-payment band, the wait can be short and worthwhile.
• An unstable income. A job change or variable pay can matter more than a few points of PMI.
• A credit fix within reach. Wholesale conventional programs generally start at a 620 decision score. If your score sits just under that line, or a modest bump would improve the premium, a short wait to repair credit can change both eligibility and cost.

Honestly, this one is a toss-up for many middle-of-the-road buyers. The arithmetic can lean either way, and the tie-breakers are usually reserves and time horizon.

The Middle Path

You do not have to choose between 3% and 20%. Putting down more, but not all of it, can improve your tier and lower the insurance cost while leaving cash in the bank. For instance, moving from 97% LTV to 95% changes the insurance picture, and so may moving toward 90%. Keep in mind the 5% pricing increments and avoid draining reserves to land just over a line. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

A Quick Decision Worksheet

Answer these five questions honestly:

1. How long to save? How many months until you reach the next pricing tier or a stronger reserve level?

2. What is rent costing you? Is it a cost you can carry while you wait?

3. How long will you stay? Several years favors buying. A short stay favors waiting.

4. What are your reserves after closing? Little to nothing leans wait. A real cushion leans buy.

5. Does the full payment fit? If PMI, taxes, insurance, and upkeep stretch you, lean wait or look at a smaller purchase.

Mostly yes on the first set of answers, and a payment that fits? Lean buy. Mostly no? Lean wait. Mixed? It is unclear, and a conversation with a loan officer about your actual file is worth more than any rule of thumb.

Early-Exit Options and Traps

There are ways to leave PMI sooner, and a few traps.

• Extra principal payments bring you to 80% and 78% faster.
• Current-value removal after appreciation or improvements is possible, but it comes with conditions on seasoning, payment history, and valuation.
• Refinancing to drop PMI works only if the new loan lands at 80% LTV or below. Closing costs and a new loan mean it is not free, so weigh it against simply waiting for the scheduled dates.
• A falling value can make removal harder, because the servicer wants current value at or above the original. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

One more thing. The appraisal at purchase sets the value used for LTV and the “original value” for later PMI removal. If the price is higher than the appraisal, LTV is figured on the lower number, per Fannie Mae’s Selling Guide, which can change whether insurance is required.

Key Terms Defined

PMI (private mortgage insurance): Coverage on a conventional loan that protects the lender when the down payment is under 20%.

LTV (loan-to-value): The loan amount divided by the home’s value or price, whichever is lower.

Original value: The lower of the price and the appraisal at purchase, used for the 80% and 78% PMI dates.

HomeReady / Home Possible: Fannie Mae and Freddie Mac low-down-payment programs with an income limit of 80% of area median income.

Reserves: Money left in your accounts after closing.

What Should You Ask a Lender?

• Which program fits my file: standard 97%, 95%, HomeReady, or Home Possible?
• Is the PMI borrower-paid monthly, or is it lender-paid? Can it be cancelled?
• What happens to my PMI cost if I put down a bit more?
• How much will I have in reserves after closing?
• When are my projected 80% and 78% dates?

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. The brokerage arranges conventional loan programs through wholesale lenders in the 16 states where it does consumer lending.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – Determine your down payment

2. Fannie Mae – Eligibility Matrix

3. CFPB – When can I remove private mortgage insurance (PMI) from my loan?

4. CFPB – Homeowners Protection Act examination procedures

5. Fannie Mae – Selling Guide B7-1-01, Provision of Mortgage Insurance