If you’re buying a home with less than 20% down, there’s a good chance you’ll encounter something called PMI, or private mortgage insurance. While it adds to your monthly costs, it can help you qualify for a mortgage sooner by reducing risk for the lender.
This guide breaks down what PMI is, how it works, how much it costs, and most importantly—how to avoid or remove it when the time comes.
What Is PMI?
Private mortgage insurance (PMI) is a fee that borrowers pay to protect the lender in case of default. It’s typically required on conventional loans when your down payment is less than 20% of the home’s purchase price.
While it doesn’t protect you as the borrower, it allows lenders to offer loans with lower down payments. Once you’ve built enough equity, you can request to have it removed.
When Is PMI Required?
PMI is usually required when:
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You’re using a conventional loan
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Your loan-to-value (LTV) is above 80% (i.e., less than 20% down)
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Your lender does not offer an alternative structure like lender-paid PMI or a piggyback loan
Government-backed loans like FHA, VA, and USDA have their own mortgage insurance programs—PMI applies only to conventional loans.
How Much Does PMI Cost?
PMI costs between 0.5% and 1.5% of your loan amount annually. That means a $300,000 loan could include $1,500 to $4,500 per year, or $125–$375 per month, depending on:
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Your credit score
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The loan size
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Your down payment amount
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The type of PMI used
You may also pay more upfront or opt for alternatives that shift PMI costs differently.
Types of Private Mortgage Insurance
There are several payment structures. Here’s how they differ:
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Borrower-Paid Monthly PMI
Most common form. You pay a monthly fee as part of your mortgage payment. -
Single-Premium PMI
You pay the full insurance cost upfront at closing. Eliminates monthly PMI, but it’s non-refundable if you sell or refinance early. -
Split-Premium PMI
Combines upfront and monthly payments. A good compromise if you want lower monthly costs without a large upfront hit. -
Lender-Paid PMI (LPMI)
Your lender pays it but charges a slightly higher interest rate. This version can’t be removed later.
See how PMI changes your loan cost with our Conventional Mortgage Calculator.
How to Remove PMI
The Homeowners Protection Act (HPA) gives you the legal right to cancel PMI under certain conditions.
PMI can be removed when:
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Your loan reaches 78% of the original purchase value (automatic removal)
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You reach 80% LTV and request cancellation (with a good payment history)
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Your home appreciates or you make extra payments that reduce your balance
You may need a new appraisal or proof of equity to remove PMI early.
Can I Avoid PMI?
Yes, there are a few ways to avoid PMI:
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Put down 20% or more
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Use a piggyback loan (80/10/10 structure)
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Choose a Lender-Paid PMI option (though your rate may be higher)
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Qualify for a special loan program (first-time buyer or physician loan programs may waive it)
PMI vs MIP vs Homeowners Insurance
PMI is different from FHA mortgage insurance (MIP) and homeowners insurance:
| Insurance Type | Applies To | Who It Protects | Can Be Removed? |
|---|---|---|---|
| PMI | Conventional loans | Lender | ✅ Yes |
| MIP (FHA Loans) | FHA Loans | Lender | ❌ Often not |
| Homeowners Insurance | All property owners | Borrower + Property | ✅ Optional |
While PMI and MIP are mortgage-related, homeowners insurance covers property damage, theft, and liability—completely unrelated to loan risk.
General Questions
What is private mortgage insurance (PMI)?
Private mortgage insurance, or PMI, is a type of insurance that protects the lender—not the borrower—if you stop making mortgage payments. It’s typically required when a buyer puts down less than 20% on a conventional loan. It reduces the lender’s risk, but it adds an extra monthly (or upfront) cost to your mortgage.
How much does PMI cost?
PMI usually costs between 0.5% and 1.5% of your total loan amount annually. For example, if your loan is $300,000, it could cost between $1,500 and $4,500 per year, or roughly $125–$375 per month. The exact amount depends on your credit score, loan size, and down payment.
Do all lenders require PMI if I put less than 20% down?
Most conventional lenders will require PMI with less than 20% down. However, some specialty loan programs—such as those from credit unions or portfolio lenders—may waive PMI for certain borrowers. VA and USDA loans never require PMI, even with zero down.
Can I avoid PMI without putting down 20%?
Yes. Options to avoid PMI include:
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Choosing a lender-paid PMI (LPMI) plan
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Structuring a “piggyback loan” (80/10/10)
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Qualifying for a special first-time buyer program Keep in mind, some of these alternatives may result in higher interest rates or total loan costs.
Removal, FHA MIP, and Loan Type Differences
When can I cancel PMI?
Under the Homeowners Protection Act (HPA), lenders must automatically cancel PMI once your loan balance reaches 78% of the home’s original value—assuming you’re current on your payments. You can also request early removal at 80% if you’ve made extra payments or if your home has increased in value through appreciation or improvements.
What's the difference between PMI and FHA mortgage insurance?
PMI applies to conventional loans only. FHA loans require mortgage insurance premiums (MIP), which include both an upfront and annual fee. The biggest difference is that PMI can be removed, while MIP often lasts the life of the loan unless you refinance into a conventional loan.
Does PMI protect me if I lose my job or default?
No. It only protects the lender—not the borrower. If you stop making payments, PMI reimburses the lender for part of the loss, but it doesn’t cover your missed payments, protect your credit score, or help you keep your home.
Final Thoughts
PMI may not be ideal, but it’s often a necessary step toward homeownership—especially for buyers who haven’t saved 20%. The good news? It doesn’t last forever. Once you’ve built enough equity, you can remove it and lower your monthly payment.
If you’re unsure how PMI affects your situation, use our Calculator or speak to a loan professional to compare options and long-term costs.
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