Private mortgage insurance — commonly called PMI — is one of the most misunderstood costs in homeownership. If you are putting less than 20% down on a conventional loan, your lender will almost certainly require it. That extra charge shows up on your monthly statement, often adding $100 to $300 or more, yet many buyers do not fully understand what they are paying for or how to get rid of it. This guide breaks down when PMI applies, what it costs, and the practical strategies to avoid or eliminate it.
What Is Private Mortgage Insurance?
PMI is an insurance policy that protects your lender if you stop making mortgage payments. When you put down less than 20%, the lender takes on more risk — a smaller down payment means less equity cushion if home values fall or you default. PMI offsets that risk by guaranteeing the lender recovers a portion of losses on foreclosure.
Importantly, PMI is not the same as homeowners insurance, which protects your property from fire, theft, and other hazards. PMI does nothing for you directly. You pay the premium, but the coverage benefits only the lender. That is why savvy buyers treat PMI as a temporary cost to minimize rather than a permanent part of homeownership.
When Is PMI Required?
On conventional conforming loans, PMI is required whenever your down payment is below 20% of the purchase price. Government-backed loans use different terminology: FHA loans charge a mortgage insurance premium (MIP), and USDA and VA loans have their own fee structures. VA loans notably do not require ongoing monthly mortgage insurance for eligible veterans.
- Conventional loans with less than 20% down — monthly PMI required
- FHA loans — upfront and annual MIP regardless of down payment size
- VA loans — no monthly PMI for qualified borrowers
- USDA loans — guarantee fee plus annual fee, similar in effect to PMI
Your credit score and loan-to-value ratio also affect PMI pricing. A borrower with 5% down and a 680 credit score will pay more per month than someone with 15% down and a 760 score. Understanding how your down payment size interacts with PMI is essential before you start house hunting.
How Much Does PMI Cost in 2026?
PMI premiums typically range from 0.3% to 1.5% of the original loan amount per year, paid monthly. On a $350,000 home with 5% down ($332,500 loan), PMI at 0.8% annually works out to roughly $222 per month. Put 10% down instead and that same rate drops to about $189 per month on a $315,000 loan.
Over the first five years of homeownership, PMI can easily total $8,000 to $15,000 — money that builds no equity and provides no direct benefit to you. That is why calculating your true monthly housing cost matters. Use our guide on how to calculate your mortgage payment to see principal, interest, taxes, insurance, and PMI together.
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You can afford homes between $278,000 and $311,000
Based on a 6.25% interest rate and 34.7% debt-to-income ratio
Recommended Price
$278,000
$1,876.31/mo · conservative
Maximum Price
$311,000
$2,099.04/mo · upper limit
Monthly Payment Breakdown
34.7%
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How to Remove PMI from Your Mortgage
The good news: PMI on conventional loans is not forever. Federal law gives homeowners clear paths to cancellation once sufficient equity is built.
Automatic PMI Termination
Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance falls to 78% of the original property value — assuming you are current on payments. On a 30-year fixed loan with no extra payments, that milestone typically arrives around year 10 to 12, depending on your interest rate.
Requesting Early PMI Cancellation
You can request PMI removal once you reach 20% equity based on the original purchase price. If home values have risen significantly, you may also qualify based on a current appraisal showing 20% equity — though lenders often require you to have held the loan for at least two years and may charge for the appraisal.
- Make extra principal payments to reach 20% equity faster
- Request cancellation in writing once you hit the 80% LTV threshold
- Order a new appraisal if appreciation has boosted your equity
- Refinance into a new loan without PMI once you have 20% equity
Strategies to Avoid PMI Entirely
The most straightforward way to skip PMI is putting 20% down. On a $400,000 home, that means $80,000 at closing — a significant hurdle for many buyers, especially first-timers. If 20% is out of reach, consider these alternatives.
Piggyback Loans (80-10-10 or 80-15-5)
A piggyback structure splits your financing into two loans: a first mortgage for 80% of the price and a second mortgage or home equity line for the remaining down payment gap. Because the first lien stays at 80% LTV, no PMI is required. The trade-off is a second loan with its own rate, often higher than the first mortgage.
Lender-Paid Mortgage Insurance (LPMI)
Some lenders offer LPMI, where they pay the insurance premium upfront in exchange for a slightly higher interest rate. You will never see a separate PMI line item, but you may pay more in interest over the life of the loan. Run the numbers carefully — LPMI can cost more than standard PMI if you plan to stay in the home long-term.
VA, USDA, and State Assistance Programs
Eligible veterans using VA loans avoid monthly PMI entirely. USDA loans serve rural buyers with low down payment options. Many states and municipalities also offer down payment assistance that can help you reach 20% or reduce effective PMI costs. Research local first-time buyer programs before assuming PMI is unavoidable.
PMI vs. FHA Mortgage Insurance: Know the Difference
FHA loans are popular for low down payments — as little as 3.5% — but FHA mortgage insurance works differently. You pay an upfront premium at closing (often financed into the loan) plus an annual premium for the life of the loan if you put less than 10% down. With 10% or more down, FHA MIP cancels after 11 years. If your goal is to eliminate insurance quickly, a conventional loan with PMI that you can cancel at 20% equity may be cheaper long-term.
The bottom line: PMI is a tool that makes homeownership accessible with a smaller down payment, but it is not free money. Model your costs with realistic assumptions, plan your path to 20% equity, and explore every option — from piggyback loans to assistance programs — before signing. A few hundred dollars saved each month adds up to thousands over the years you would otherwise be paying for lender protection.