Do I Need Mortgage Insurance? Rules by Loan Type and PMI Removal

Whether you need to pay mortgage insurance depends on two things: the type of loan you take out and how much you put down. On a conventional loan, you’ll pay private mortgage insurance (PMI) only if your down payment is less than 20% of the home’s price. FHA, USDA, and VA loans each come with their own insurance or fee that applies regardless of down payment, though the rules for how long you pay vary sharply by program.

Conventional Loans and the 20% Rule

If you take out a conventional mortgage with a down payment below 20%, your lender will require you to carry private mortgage insurance.¹ The threshold runs on your loan-to-value (LTV) ratio, which is your loan amount divided by the appraised value. Put $80,000 down on a $400,000 home and your 80% LTV avoids PMI. Put $20,000 down on that same home and the 95% LTV triggers it.

PMI typically runs 0.5% to 1.5% of your loan amount per year, added to your monthly payment.² Your exact rate depends on your credit score, the size of your down payment, and the lender. Higher scores and larger down payments push the premium toward the low end. On a $350,000 loan, the range translates to roughly $1,750 to $5,250 a year, or about $146 to $437 a month.

The important point for conventional borrowers: PMI is temporary. Federal law gives you several paths to drop it once you build enough equity.

FHA Loans: Mortgage Insurance Regardless of Down Payment

An FHA loan requires a mortgage insurance premium (MIP) no matter how much you put down. There are two parts. The upfront premium is 1.75% of the loan amount, usually rolled into your balance. The annual premium, paid monthly, ranges from 0.50% to 0.75% for most 30-year borrowers, depending on loan amount and down payment.³

How long you pay matters more than how much. On FHA loans originated after June 3, 2013, if you put down less than 10%, the annual MIP stays on the loan for its entire life. It only ends when you pay off the mortgage, sell the home, or refinance into something else. Put down 10% or more and the MIP drops off after 11 years. For borrowers who can’t reach 10% down, that permanent charge makes FHA significantly more expensive over the long run than a conventional loan where PMI eventually cancels.

The common escape is refinancing into a conventional loan once you’ve built at least 20% equity through payments, appreciation, or both. If the new loan sits at or below 80% LTV, no mortgage insurance applies. Weigh refinance closing costs against the monthly savings before you move.

USDA and VA Loans: Fees Instead of Insurance

USDA guaranteed home loans don’t use the words “mortgage insurance,” but they charge comparable fees. The upfront guarantee fee is 1% of the loan amount, and an annual fee of 0.35% of the remaining balance is added to your monthly payment.⁴ The annual fee stays low but lasts the life of the loan.

VA home loans replace mortgage insurance with a one-time funding fee. For first-time borrowers putting nothing down, the fee is 2.15% of the loan amount. It drops to 1.50% with 5% down and 1.25% with 10% or more down.⁵ Subsequent VA loans carry higher fees, up to 3.30% with no money down.⁶ Once the funding fee is paid, there are no ongoing monthly insurance charges.

Some veterans owe no funding fee at all. You’re exempt if you receive VA disability compensation, if you’re eligible for disability compensation but take retirement or active-duty pay instead, or if you’re a surviving spouse receiving Dependency and Indemnity Compensation. Active-duty service members with a Purple Heart are exempt as long as proof is provided on or before closing.⁵

How and When PMI Comes Off a Conventional Loan

Three different rules under the Homeowners Protection Act govern when PMI ends on a conventional loan for a single-family primary residence originated on or after July 29, 1999.⁷

Automatic Termination at 78%

Your lender must stop charging PMI automatically once your loan balance is scheduled to reach 78% of the home’s original value based on the initial amortization schedule. “Original value” is the lesser of your purchase price or the appraised value at closing. You don’t need to ask, as long as you’re current on payments. If you’re behind when the termination date hits, the lender can delay. Once you catch up, the insurance must come off on the first day of the following month. Your servicer is also required to send an annual notice spelling out your cancellation rights.

The Midpoint Backstop

If slow amortization or a very small down payment means your balance still hasn’t hit 78% of original value halfway through the loan term, the law requires cancellation at that midpoint, again provided you’re current.⁸ For a 30-year mortgage, PMI cannot continue past the 15-year mark. Even loans classified as “high-risk” by Fannie Mae or Freddie Mac, which don’t qualify for the standard 80% and 78% rules, are still subject to this midpoint termination.⁹

Borrower-Requested Cancellation at 80%

You don’t have to wait. Once your balance reaches 80% of the home’s original value, you can request cancellation in writing from your servicer.¹⁰ Getting there can involve scheduled payments, extra principal payments, or a mix. To qualify, you need to meet all of the following:

Submit a written request to your mortgage servicer.
Be current on your mortgage when you request cancellation.
Have a good payment history: no payments 30 or more days late in the 12 months before your request, and no payments 60 or more days late in the 12 months starting two years before.⁹
Show that the property’s value hasn’t dropped below the original value, which usually means paying for a new appraisal ($300 to $600 is typical).
Certify that you haven’t taken on a second mortgage, home equity loan, or HELOC that encumbers your equity.¹⁰

One point readers often miss: the 80% threshold is tied to original value, not current market value. Even if your home has appreciated sharply, you may still have to wait until scheduled payments bring the balance down to 80% of what the home was worth when you bought it. Some lenders allow current-value cancellation under Fannie Mae and Freddie Mac guidelines, but that’s a lender policy, not a federal right.

Ways to Avoid PMI Without Putting 20% Down

Two structures let you skip the visible PMI payment, though neither is really free.

Lender-Paid Mortgage Insurance

With lender-paid mortgage insurance (LPMI), the lender covers the premium in exchange for charging you a higher interest rate, often about a quarter of a percentage point more. Your monthly statement doesn’t show a PMI line, but the higher rate stays with the loan.¹¹ You can’t cancel LPMI the way you can cancel borrower-paid PMI. The only exit is refinancing or paying off the loan. LPMI can make sense if you’ll sell or refinance in a few years; over longer holding periods, borrower-paid PMI that you can eventually cancel usually costs less.

Piggyback Loans

A piggyback, often called an 80/10/10, splits financing into two mortgages. The first covers 80% of the home’s value, a second covers 10%, and you put 10% down. Because the primary mortgage sits at exactly 80% LTV, no PMI is required. On a $400,000 home, that’s a $320,000 first mortgage, a $40,000 second, and $40,000 down. The second mortgage typically carries a higher rate, and you’ll manage two payments. The structure can also keep each loan under conforming limits to avoid jumbo loan requirements.

If the Property Isn’t Your Primary Home

The Homeowners Protection Act’s cancellation and automatic termination rules apply only to single-family homes used as your primary residence. If you’re financing a two-to-four-unit property or an investment property, the standard 80% and 78% thresholds don’t apply to you. Fannie Mae and Freddie Mac guidelines are stricter: borrowers on multi-unit or investment property loans generally cannot request PMI cancellation until the balance drops to 70% of original value, and these loans are not eligible for automatic termination at all.⁹ To request cancellation based on current appraised value instead of original value, the mortgage must be at least two years old.

1
Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
2
My Home by Freddie Mac. The Math Behind Putting Down Less Than 20%
3
Office of the Law Revision Counsel. 12 USC 1709 – Insurance of Mortgages
4
USDA Rural Development. Upfront Guarantee Fee and Annual Fee Notes
5
Veterans Affairs. VA Funding Fee and Loan Closing Costs
6
Office of the Law Revision Counsel. 38 USC 3729 – Loan Fee
7
Office of the Law Revision Counsel. 12 USC Chapter 49 – Homeowners Protection
8
Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
9
Consumer Financial Protection Bureau. Homeowners Protection Act (HPA) – PMI Cancellation Act Procedures
10
Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance
11
National Credit Union Administration. Homeowners Protection Act (PMI Cancellation Act)