If you do not put at least 20% down on a mortgage, lenders are going to require you to pay mortgage insurance, known as PMI. PMI charges vary depending on the size of the down payment and the loan, but they typically annually amount to about one-half of one percent of the loan, according to the Mortgage Bankers Association of America. Home buyers must maintain the PMI premiums until they cross that one-fifth-of-principal threshold, a process that can take years in longer-term mortgages.
If you buy a $100,000 house and finance the purchase for 30 years at a rate of 3.75%, let's see how PMI will effect your payment:
Down Payment 20%: Loan Payment: $370.49, PMI: $0 = Total Payment: $370.49
Down Payment 10%: Loan Payment: $416.80, PMI: $37.50 = Total Payment: $454.30 Diff: $83.81
Down Payment: 5%: Loan Payment: $439.96, PMI: $39.58 = Total Payment: $479.54 Diff: $109.05
Down Payment: 0%: Loan Payment: $463.12, PMI: $41.67 = Total Payment: $504.78 Diff: $134.29
As you can see, when you factor in the PMI, the monthly payment increases dramatically.