Patriot Nation, the down payment conversation usually stops at "how much cash do I need?" The more honest question is "what does the small down payment cost me every month?" Mortgage insurance is the answer, and it changes the compare between FHA, conventional, and the 20%-down dream. Here is the full math.
See the whole payment, insurance included.
I run FHA and conventional on the same house with the same down payment, PMI and MIP both shown, so you compare real monthly totals, not just rates.
Why mortgage insurance exists
Less than 20% down means the lender is exposed to a bigger loss if values drop and you walk away. Mortgage insurance is the premium that covers that exposure, and the cost lands on you, the borrower, as a monthly line item. It is not a punishment, it is the price of the privilege of buying sooner, and the smart play is to know it, price it, and plan the exit.
Example math: $300,000 home, 3% down
Rounded example, not a quote
Conventional loan, $300,000 purchase, 3% down with a mid-range credit profile, principal and interest plus the PMI line.
PMI rates vary by down payment, credit score, and loan size and are quoted per file. The example shows the shape of the cost, not your number.
Notice PMI is temporary on conventional loans. It does not stop on a schedule, it stops on a loan-to-value: you can request cancellation at 80% of the original value, and the lender must drop it automatically at 78% under the original amortization. An appraisal can remove it faster when values rose, usually after two years of seasoning. My removing PMI guide maps the exit exactly.
The FHA version of the same story
FHA takes a different toll: a 1.75% upfront premium, usually financed into the loan, plus an annual premium of 0.55% on a 30-year loan with 3.5% down, and on most 30-year FHA loans that annual premium lasts the life of the loan. On the same $300,000 example, the FHA route finances roughly $5,100 of upfront premium into the balance and then pays about $135 a month in annual MIP that never goes away unless you refinance. That is why the "FHA is cheaper for lower credit" story has a long-run price.
Reality Bites: on conventional, PMI is temporary and ends. On FHA with 3.5% down, annual MIP runs for the life of most 30-year loans. If you plan to hold for years, that difference compounds into a serious number, and it is the single most underrated line on a loan estimate.
FHA vs. conventional with little down
| Factor | FHA (3.5% down) | Conventional (3% down) |
|---|---|---|
| Credit floor | 580 | 620, better pricing at 680+ |
| Upfront insurance | 1.75% (financed) | None |
| Annual insurance | 0.55%, life of loan | PMI, drops at 80% LTV |
| Best fit | Lower credit, smaller cash | Stronger credit, long hold |
Program figures reflect 2026 FHA premiums and standard conventional PMI structure. Your rate and pricing depend on credit and loan size.
The full side-by-side, including VA and USDA in the same chart, lives in the first-time buyer loan guide, and the FHA deep dive is here.
Waiting for 20% down is the most expensive strategy of all.
While you save for 20%, you pay rent and the market moves. I show buyers the 3% and 3.5% paths with the true insurance math, so the decision is about totals, not rules of thumb.
The honest total: how much house can 3% actually buy you?
The low-down-payment math feeds straight into what you can afford. A $300,000 San Antonio home in the typical citywide range around $250,000 to $320,000 is realistic on a 3% program for many buyers, but the PMI line eats buying power, and your debt-to-income ratio has to absorb it. That is why the affordability question is really a payment question, and my how much house can you afford guide walks the whole budget. The how much down payment answer rounds out the picture.
Frequently Asked Questions
How much does PMI cost on a conventional loan? Tap to expand
How do I avoid PMI? Tap to expand
When does PMI come off a conventional loan? Tap to expand
Is FHA or conventional better with a low down payment? Tap to expand
Can I buy with 3% down in San Antonio? Tap to expand
Buy sooner, but buy with your eyes open.
I show the PMI line, the MIP line, and the exit plan on every low-down-payment quote, because the honest total is the only number that should decide this.
About Patrick Kevin Fagan, REALTOR®
Patrick Kevin Fagan is a Texas Real Estate Sales Agent (#454749) with AXEN Realty LLC and a Senior Loan Officer (NMLS ID #877741) with NEXA Mortgage, LLC (NMLS #1660690). He brings 23+ years in mortgage lending and 19 years in real estate, serving homebuyers, homeowners, and sellers across Greater San Antonio and the Texas Hill Country.
Answered by Patrick Kevin Fagan
Texas Real Estate Sales Agent #454749, AXEN Realty LLC · Senior Loan Officer, NMLS ID #877741, NEXA Mortgage, LLC
Call or text: 210-317-6514
PMI and MIP figures reflect typical 2026 rates and FHA premium schedules; actual costs depend on your credit, down payment, and loan size. Dollar figures are labeled examples, not quotes.
