What Is PMI and How Can You Avoid Paying It?

If you're buying a home with less than 20% down, you'll likely encounter PMI — private mortgage insurance. It's one of the most misunderstood costs in home buying, and it can add hundreds of dollars to your monthly payment.

Here's what you need to know.

What Is PMI?

Private mortgage insurance (PMI) is an insurance policy that protects the lender — not you — if you stop making payments on your mortgage. It exists because loans with less than 20% down are considered higher risk.

Despite protecting the lender, you pay the premium. It's added to your monthly mortgage payment and typically costs between 0.3% and 1.5% of your original loan amount per year.

How Much Does PMI Actually Cost?

The exact cost depends on three factors: your credit score, your down payment percentage, and your loan amount.

Here's what PMI looks like on a $350,000 home with different down payments:

5% down ($332,500 loan)

• Credit score 760+: ~$83/month (0.3% rate)
• Credit score 700-719: ~$152/month (0.55% rate)
• Credit score 660-679: ~$235/month (0.85% rate)

10% down ($315,000 loan)

• Credit score 760+: ~$66/month (0.25% rate)
• Credit score 700-719: ~$118/month (0.45% rate)
• Credit score 660-679: ~$184/month (0.70% rate)

15% down ($297,500 loan)

• Credit score 760+: ~$50/month (0.20% rate)
• Credit score 700-719: ~$87/month (0.35% rate)
• Credit score 660-679: ~$136/month (0.55% rate)

As you can see, both your credit score and down payment size have a major impact on PMI costs.

When Does PMI Go Away?

For conventional loans, PMI has clear removal rules set by federal law (the Homeowners Protection Act):

• Automatic cancellation: Your lender must cancel PMI when your loan balance reaches 78% of the original home value (based on the original purchase price or appraised value at closing).
• Borrower-requested cancellation: You can request PMI removal when your loan balance reaches 80% of the original value. You need to be current on payments with a good payment history.
• Midpoint cancellation: PMI must be removed at the midpoint of your loan term (year 15 of a 30-year mortgage) regardless of your loan-to-value ratio.

Important: these percentages are based on your original home value, not the current market value. If your home has appreciated significantly, you may be able to get PMI removed early by ordering a new appraisal — but this requires lender cooperation and varies by servicer.

FHA Mortgage Insurance Is Different

FHA loans have their own version called MIP (mortgage insurance premium). The rules are less favorable:

• Upfront MIP: 1.75% of the loan amount, added to your balance
• Annual MIP: 0.55% per year (paid monthly)
• Duration: If you put less than 10% down, MIP lasts the entire life of the loan — it never goes away unless you refinance into a conventional loan
• 10%+ down: MIP drops off after 11 years

This is one of the biggest reasons to choose conventional over FHA when you can qualify for both.

5 Strategies to Avoid or Minimize PMI

1. Put 20% down
The simplest way to avoid PMI entirely. On a $350,000 home, that's $70,000 — which isn't realistic for most first-time buyers but eliminates PMI completely.

2. Improve your credit score first
Even if you can't avoid PMI, a higher credit score significantly reduces the rate. Going from 680 to 740 can cut your PMI cost nearly in half. Spend 3-6 months paying down credit cards and fixing any errors on your credit report before applying.

3. Consider a piggyback loan (80/10/10)
Take out a primary mortgage for 80% of the home value and a second smaller loan (home equity loan or HELOC) for 10%, then put 10% down. The first mortgage has no PMI because it's at 80% LTV. The second loan has a higher rate, but the combined cost is often less than PMI.

4. Look into lender-paid PMI (LPMI)
Some lenders offer to pay your PMI in exchange for a slightly higher interest rate (typically 0.25-0.50% higher). The upside: no separate PMI payment, and the higher rate may be tax-deductible as mortgage interest. The downside: the higher rate is permanent — you can't remove LPMI like you can borrower-paid PMI.

5. Choose a VA or USDA loan
If you're eligible, VA loans (for veterans and active military) and USDA loans (for rural areas) have no PMI requirement regardless of your down payment. VA loans are arguably the best mortgage product available — zero down payment and no mortgage insurance.

Should You Wait to Save 20%?

In most cases, no. Here's why:

• Home prices typically appreciate 3-5% per year. While you save, the price target keeps moving.
• You're paying rent instead of building equity.
• PMI on a conventional loan is temporary — it goes away once you reach 80% LTV.
• The monthly cost of PMI is often less than the opportunity cost of waiting.

The math usually favors buying sooner with PMI rather than waiting 2-3 years to save a full 20% down payment. But every situation is different.

Run your specific scenario through our free calculator at [homebuyercalc.com/calc](/calc) to see exactly how PMI affects your monthly payment across different loan types and down payment amounts.