Putting 20% down can be a sensible decision. But selling investments solely to avoid private mortgage insurance deserves a closer look.
When buyers focus on eliminating one monthly charge, they can overlook taxes, liquidity, additional interest expense and other financing options.
My starting point is simple: compare the complete financing structure before deciding how much money to move.
Three ways to structure an $800,000 purchase
| Illustrative structure | Down payment | First mortgage | Second mortgage |
|---|---|---|---|
| 20% down | $160,000 | $640,000 | None |
| 10% down with PMI | $80,000 | $720,000 | None |
| 80/10/10 piggyback | $80,000 | $640,000 | $80,000 |
These figures exclude closing costs, prepaid expenses and required reserves. They illustrate structures, not available loan offers.
Option one: Put 20% down
A larger down payment reduces the amount borrowed and generally avoids borrower-paid PMI on a conventional first mortgage.
That can mean lower monthly payments and less interest expense. Those are real benefits.
The question is where the additional money comes from. Selling appreciated investments in a taxable brokerage account may realize capital gains. The tax consequences depend on factors such as cost basis, holding period and your overall tax situation—not simply the amount sold.
Your CPA and financial advisor should help evaluate that decision.
Option two: Put 10% down and pay PMI
A smaller down payment can preserve funds outside the home, but it also means borrowing more.
Suppose PMI were quoted at $80 per month. That would be $960 per year. However, the extra $80,000 borrowed also carries mortgage interest. Comparing $80,000 of retained assets against PMI alone leaves out a substantial part of the calculation.
PMI pricing varies. A strong credit score does not guarantee a particular premium.
PMI also need not last for the entire loan. For many conventional mortgages, borrowers can request cancellation when the balance reaches 80% of the home’s original value, subject to requirements. Automatic termination generally occurs at the scheduled 78% point if payments are current. Appreciation alone does not automatically cancel PMI. CFPB guidance on PMI cancellation.
Option three: Combine a first and second mortgage
An 80/10/10 piggyback uses an 80% first mortgage, a 10% second mortgage and a 10% down payment. The second may be a home-equity loan or HELOC arranged alongside the first mortgage. An eligible structure can avoid PMI on the first mortgage. CFPB explanation of piggyback mortgages.
But the second loan replaces the PMI expense with another borrowing obligation. Compare:
- The combined payment and interest expense of both loans.
- Closing costs and other fees.
- Whether the second mortgage’s rate can change.
- Its amortization, maturity and any balloon payment.
- How payments could change after a HELOC’s draw period.
- Your ability to repay or refinance both loans.
“No PMI” is a feature—not proof of lower total cost.
Keep the mortgage inside the financial plan
Money contributed to a home is less readily accessible than cash in a bank account. Accessing that equity later may require a sale or new financing, with qualification requirements, costs and then-current terms.
Retaining investments has risks too: their value can fall, and returns are not guaranteed. Borrowing more to preserve an investment portfolio is not automatically the right choice.
My role is to explain the mortgage options and, with your permission, coordinate with your advisors. Together, we can compare the financing against your priorities without treating tax or investment decisions as an afterthought.
Before you sell investments for a larger down payment, let’s compare all three structures.
Contact Buck McLamb at River Bear Financial to discuss your options. Please keep sensitive financial documents out of ordinary email and public comments.
Buck McLamb, Broker
NMLS #1986926
River Bear Financial
Company NMLS #2535144
Cell: (512) 888-3886
Office: (512) 200-2331
Buck@riverbearfinancial.com
www.riverbearfinancial.com
2201 N. Lamar, Austin, TX 78705
Educational information only; not a commitment to lend or tax or investment advice. Examples exclude closing costs, prepaid expenses and reserves. The $80 monthly PMI figure is hypothetical and is not a current quote. Financing, PMI, rates, fees and terms depend on qualification, property, lender and insurer requirements. Piggyback financing may not be available for every scenario. Consult your CPA and financial advisor.