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First Time Home Buyers - Down Payment, PMI and Points
1 - For FHA loans PMI is required for mortages where there is not at least 20% equity.  Bank Financed Non-FHA loans may have other standards. If you are getting an FHA loan ,if possible put down 20%  so that you do not have to pay PMI.  That said your PMI costs should be reduced by the size of your down payment since the PMI covers the difference between your equity value (Based on the appraisal at time of purchase) and 20% equity value of the home. So if you buy a home for 425k(assuming 100% appraisal price) 20% equity would be 85k.  So if you put 10% down you would be paying PMI until you accrue an addition 42500 in equity.  And you will be paying PMI on that for about 12 years(typical on 30 year mortgage) or until you refinance(having home appraised at higher value than purchase price where you would have 20% equity).  There are ways to get out of PMI early but few banks are willing to help you through the hoops unless you refinance(and pay more closing costs). 2 - Different banks offer better rates or other benefits for paying points.  We paid $300 for a 1.5% reduction in our interest rate (less than 1%) but it was called a point. We were offered a few other points (.25% for 2500 and an one time on demand interest rate adjustment for ~3k) but declined but they may make more sense on a 425k home than our more modest one.  You can talk to a banker about this now, get preapproved(which helps with getting offers accepted sometimes), and find out more details about the mortgage they will offer you.  This meeting should be free(I would say will but some bank would charge just to prove me wrong) and help answer your questions more authoritatively than anyone here can.   3 - The costs will come out of your down payment.  So if you put down 42.5k down your costs will come out of that.  So you will probably end up with 30~35k being applied towards your purchase price with the rest going for costs.  You can tell the banker you want to put 10% towards the price and the banker will give you a down payment probably around 50k to cover costs etc.  (My figures are hopefully intentionally high better to find out that it will cost less than my guesstimate than get your hopes up just to find out the costs are higher than expected.)