If you’re taking out a conventional mortgage with less than 20% down, yes, you need private mortgage insurance. PMI protects the lender if you default, and the requirement kicks in automatically whenever your loan amount is more than 80% of what the home is worth. You can avoid it by putting 20% down, choosing a loan type that doesn’t use PMI, or structuring the purchase around a second mortgage. And if you already have it, federal law gives you a clear path to cancel.
When a Lender Will Require PMI
The trigger is your loan-to-value ratio. Divide what you owe by what the home is worth; if the result is above 0.80, a conventional lender will require PMI.1National Credit Union Administration. Homeowners Protection Act (PMI Cancellation Act) Put down 20% or more and you skip it entirely. Put down 15%, 10%, or 3% and you’ll pay it. The smaller your down payment, the more you’ll pay in premiums and the longer you’ll carry them.
What PMI Actually Costs
Annual PMI premiums typically run between 0.46% and 1.50% of your loan balance. Credit score drives most of that spread. Borrowers at 760 and above pay around 0.46%, while borrowers in the 620–639 range pay close to 1.50%. On a $350,000 mortgage, that’s roughly $134 versus $438 a month.
Rough annual rates by credit tier:
- 760 and above: around 0.46%
- 720 to 759: around 0.58% to 0.70%
- 680 to 719: around 0.79% to 0.98%
- 640 to 679: around 1.23% to 1.31%
- 620 to 639: around 1.50%
LTV ratio and debt-to-income ratio also affect what you pay, but credit score creates the widest variation. Most borrowers pay as a monthly charge added to the mortgage payment.
How to Avoid PMI
Put 20% Down
This is the direct route. If the first mortgage never exceeds 80% of the home’s value, no PMI is required.
Use a Piggyback Loan
A piggyback splits the financing across two mortgages so the primary loan stays at or below 80% LTV. The most common version is the 80/10/10: an 80% first mortgage, a 10% second mortgage, and 10% cash down.2Consumer Financial Protection Bureau. What Is a “Piggyback” Second Mortgage An 80/15/5 works the same way with only 5% cash.
The trade-off is cost and complexity. The second mortgage carries a higher interest rate than the first and often has an adjustable rate that can increase over time.2Consumer Financial Protection Bureau. What Is a “Piggyback” Second Mortgage You’ll have two loan payments, two sets of closing costs, and sometimes an interest-only period or shorter term on the second loan. For some buyers the combined cost beats a single larger mortgage with PMI; for others it doesn’t. Run both scenarios before deciding.
Consider Lender-Paid Mortgage Insurance
Some lenders will pay the mortgage insurance themselves in exchange for a higher interest rate, typically about a quarter of a percentage point higher for strong credit, more if your credit is weaker or your LTV is high. There’s no separate PMI line on your statement.
The catch: the cost is baked into your rate for the life of the loan. You can’t cancel it when you hit 20% equity the way you can with borrower-paid PMI.3U.S. Mortgage Insurers. Understanding Private Mortgage Insurance Options Lender-paid insurance tends to make sense if you expect to sell or refinance within five to seven years and poorly if you plan to stay long-term.
Qualify for a VA Loan
VA-backed purchase loans don’t require mortgage insurance of any kind, even with zero down. The Department of Veterans Affairs guarantees part of the loan, which gives lenders enough cover to skip the insurance requirement.4Veterans Affairs. Purchase Loan There is a one-time VA funding fee instead, and it can be financed into the loan. Veterans receiving VA disability compensation, surviving spouses receiving Dependency and Indemnity Compensation, and active-duty recipients of the Purple Heart are exempt from the funding fee.5Veterans Affairs. VA Funding Fee And Loan Closing Costs
Getting Rid of PMI You Already Pay
The Homeowners Protection Act sets the rules for ending PMI on conventional mortgages, and there are two paths: you can request cancellation, or it ends automatically.6Office of the Law Revision Counsel. 12 U.S.C. Chapter 49 – Homeowners Protection
Request Cancellation at 80% LTV
You can ask your servicer in writing to cancel PMI once your loan balance reaches 80% of the home’s original value. To qualify, you must be current on payments, have a good payment history, show that the home’s value hasn’t dropped below the original price, and certify that no other liens sit on the property.7Office of the Law Revision Counsel. 12 U.S.C. 4902 – Termination of Private Mortgage Insurance
Good payment history has a specific definition: no payment 30 or more days late in the preceding 12 months, and none 60 or more days late in the 12 months before that. One late payment at the wrong time can push your cancellation date out.
Automatic Termination at 78% LTV
Even if you never ask, your servicer must drop PMI automatically on the date your loan balance is scheduled to hit 78% of the home’s original value, based on the amortization schedule. You have to be current on payments on that date; if you’re behind, the termination takes effect the first month after you catch up.7Office of the Law Revision Counsel. 12 U.S.C. 4902 – Termination of Private Mortgage Insurance Your lender also has to send you an annual notice of your cancellation rights.6Office of the Law Revision Counsel. 12 U.S.C. Chapter 49 – Homeowners Protection
Cancel Early Based on Current Value
If your home has appreciated, you may be able to cancel PMI before the scheduled date. This route requires a new professional appraisal, usually $300 to $700 for a standard residential property, showing your current LTV is below 80% based on today’s market value. Most lenders require the loan to be at least two years old before they’ll consider value-based cancellation, and you still have to meet the payment history and lien-free conditions.8Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance (PMI) From My Loan
If You Have an FHA or USDA Loan, Different Rules Apply
PMI, strictly speaking, is a feature of conventional mortgages. If you have a government-backed loan, you’re paying a different kind of mortgage insurance under different rules.
FHA loans require a Mortgage Insurance Premium (MIP) regardless of down payment: 1.75% upfront plus an annual premium collected monthly.9Consumer Financial Protection Bureau. FHA Loans10U.S. Department of Housing and Urban Development. Single Family Upfront Mortgage Insurance Premium If you put less than 10% down, the annual MIP stays for the life of the loan. Put down 10% or more and it drops off after 11 years. There is no equity-based cancellation request like the conventional rule allows. For borrowers who put less than 10% down, the only way out is to refinance into a conventional loan after building enough equity.
USDA guaranteed loans charge a 1% upfront guarantee fee and a 0.35% annual fee, with the annual fee calculated on the remaining balance and collected monthly.11United States Department of Agriculture. Upfront Guarantee Fee and Annual Fee Single Family Housing Guaranteed Loan Program The annual fee does not drop off at 20% equity; it stays for the life of the loan, and refinancing into a different loan type is the only way to eliminate it.