The most reliable ways to avoid paying private mortgage insurance are putting 20 percent down on a conventional loan, using a VA or USDA loan that carries no monthly mortgage insurance, splitting the purchase with a piggyback second mortgage, or choosing lender-paid mortgage insurance and accepting a higher interest rate instead. If you already have PMI on a conventional loan, federal law gives you the right to cancel it once you reach 80 percent equity. PMI typically runs between 0.46 percent and 1.50 percent of the original loan amount each year, so on a $400,000 mortgage the annual cost falls somewhere between roughly $1,840 and $6,000 depending on your credit and down payment.
Put 20 Percent Down
Lenders drop the PMI requirement when the loan-to-value ratio is 80 percent or lower at closing. On a $400,000 home, that means bringing $80,000 to the table. It is the cleanest path and the only one that requires no tradeoffs elsewhere in the loan.
If you cannot reach 20 percent, a larger partial down payment still helps. Moving from 5 percent down to 10 percent down does not eliminate PMI, but it lowers the premium because the insurer’s exposure shrinks. Every additional percentage point of equity you bring reduces the monthly cost until you cross the 80 percent line.
Use a VA Loan If You Qualify
The Department of Veterans Affairs offers mortgage financing with no down payment and no monthly mortgage insurance to eligible service members, veterans, and surviving spouses.1Veterans Affairs. Purchase Loan You will need a Certificate of Eligibility to prove you meet the service requirements.2Veterans Benefits Administration. VA Home Loans
VA loans do carry a one-time funding fee that ranges from 1.25 percent to 3.30 percent of the loan amount, depending on your down payment size, whether you are active duty or a reservist, and whether this is your first VA loan or a later use.1Veterans Affairs. Purchase Loan Veterans with service-connected disabilities are exempt from that fee entirely. Even at the top of the range, one upfront charge is almost always cheaper than years of monthly PMI.
Use a USDA Loan for a Rural or Suburban Home
The USDA’s Single Family Housing Guaranteed Loan Program offers 100 percent financing with no down payment to low- and moderate-income buyers in eligible rural areas.3USDA Rural Development. Single Family Home Loan Guarantees These loans carry no private mortgage insurance. Borrowers instead pay an upfront guarantee fee of 1 percent of the loan and an annual fee of 0.35 percent built into the monthly payment.
Eligibility turns on your household income and the property’s location. Income limits are generally set at 115 percent of the area median, adjusted for household size.4USDA Rural Development. Single Family Housing Direct Home Loans The USDA’s eligibility maps define “rural” more broadly than most buyers expect, and many suburban neighborhoods qualify.
Know That FHA Loans Do Not Solve the PMI Problem
FHA loans are a common choice for first-time buyers with small down payments, but they come with their own mortgage insurance that is harder to shed than conventional PMI. Every FHA loan carries an upfront mortgage insurance premium of 1.75 percent of the loan amount, which most borrowers roll into the balance, plus an annual premium in each monthly payment.5HUD. Appendix 1.0 – Mortgage Insurance Premiums
If you put down less than 10 percent on an FHA loan, the annual premium stays for the life of the loan. It never cancels. The Homeowners Protection Act, which gives conventional borrowers the right to drop PMI, does not apply to FHA-insured mortgages. Borrowers who put at least 10 percent down can eventually have the annual premium removed, but only after 11 years.5HUD. Appendix 1.0 – Mortgage Insurance Premiums The only reliable exit before the loan term ends is to refinance into a conventional loan once you have enough equity.
Split the Loan With a Piggyback Mortgage
A piggyback loan, sometimes called an 80/10/10, splits your financing into two loans so the primary mortgage stays at or below 80 percent of the home’s value. You take a first mortgage for 80 percent, a second loan for 10 percent, and put 10 percent down. Because the first mortgage never crosses the PMI threshold, no insurance is required.6Consumer Financial Protection Bureau. What Is a Piggyback Second Mortgage
The second loan carries a higher rate than the first. When it is a home equity line of credit, that rate is usually variable and moves with the market. Run the numbers carefully. The combined interest on both loans can exceed what you would have paid in PMI, especially if rates climb after closing. You also pay closing costs and recording fees on the second lien, and some lenders have tightened qualification standards for this structure. It works best for borrowers with strong credit who plan to pay down the second lien aggressively within a few years.
Consider Lender-Paid Mortgage Insurance
With lender-paid mortgage insurance, the lender covers the insurance cost upfront in exchange for a higher interest rate on the mortgage. There is no separate PMI line on your monthly statement, and borrowers with excellent credit may pay only about a quarter of a percentage point more in rate. The tradeoff is that the higher rate lasts for the life of the loan. Regular PMI drops off once you reach 80 percent equity; the rate bump on a lender-paid policy keeps compounding for 30 years unless you refinance.
This approach suits borrowers who plan to sell or refinance within five to seven years. Over that horizon the savings from skipping a monthly PMI charge can outweigh the extra interest. Hold the loan for 20 or 25 years and the math usually reverses. Ask your lender to run a side-by-side comparison of total costs over your expected holding period against paying standard PMI and canceling it at 20 percent equity.
Cancel PMI You Are Already Paying
The Homeowners Protection Act sets two ways off a conventional PMI policy: borrower-requested cancellation and automatic termination.7Office of the Law Revision Counsel. 12 USC 4901 Definitions
Request Cancellation at 80 Percent
You can request cancellation once your loan balance reaches 80 percent of the home’s original value. Original value means the lesser of the sale price or the appraised value at the time you closed.7Office of the Law Revision Counsel. 12 USC 4901 Definitions You can reach 80 percent through the original amortization schedule or through extra principal payments.
To qualify, you must submit a written request, be current on payments, and have a good payment history. The law defines good payment history in two pieces: no payment 30 or more days late in the 12 months immediately before the request, and no payment 60 or more days late in the 12-month window that runs from 24 months to 12 months before the request.8Office of the Law Revision Counsel. 12 USC Ch. 49 Homeowners Protection You also need to certify that no second lien sits on the property and provide evidence that the home’s value has not fallen below its original value.
Automatic Termination at 78 Percent
Even without a letter, your servicer must automatically terminate PMI once the loan balance is scheduled to reach 78 percent of the original value on the original amortization schedule, provided you are current at that date.9Office of the Law Revision Counsel. 12 USC 4902 Termination of Private Mortgage Insurance If you are behind when that date arrives, PMI drops off the first day of the month after you become current. Waiting for the 78 percent automatic date instead of requesting cancellation at 80 percent costs you extra months of premiums for no reason.
High-Risk Loan Exceptions
Loans classified as high risk at origination follow different rules. For conforming loans, Fannie Mae and Freddie Mac guidelines define what counts as high risk. Automatic termination on these loans may not kick in until the balance reaches 77 percent of the original value, and the standard 80 percent request path may not apply.8Office of the Law Revision Counsel. 12 USC Ch. 49 Homeowners Protection Even for high-risk loans, PMI must terminate no later than the midpoint of the amortization period as long as payments are current. On a 30-year mortgage, that is year 15.
Use Home Appreciation to Cancel Earlier
If your home’s market value has risen since you bought it, you may have enough equity to cancel PMI well before the amortization schedule gets you there. This route needs a new appraisal from someone your servicer selects or approves. Expect to pay $300 to $600 for a standard single-family appraisal, though larger or more complex properties cost more.
The appraisal has to show a current loan-to-value ratio that meets the lender’s threshold. Many servicers follow Fannie Mae and Freddie Mac guidelines, which typically require 80 percent LTV if the loan is at least five years old and 75 percent LTV for newer loans. Those thresholds are stricter than the HPA’s rules based on original value, so a modest price bump may not be enough. Check recent comparable sales in your neighborhood before paying for the appraisal.
Refinance Out of Mortgage Insurance
Refinancing into a new conventional loan is sometimes the fastest way to drop mortgage insurance, especially for FHA borrowers stuck with lifetime MIP. If your home has appreciated enough that the new loan is 80 percent or less of the current appraised value, the new mortgage will not require PMI at all.10Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance PMI From My Loan
Refinancing carries its own costs: origination fees, appraisal, title insurance, and potentially points. It only pays off if the savings from dropping PMI, plus any rate improvement, cover those costs within a reasonable timeframe. Run the break-even calculation before you commit. If you plan to move within two or three years, refinancing to shed PMI rarely works out.
How to Submit the Cancellation Request
Send your written cancellation request to your mortgage servicer by certified mail so you have a delivery receipt. Include your name, property address, loan account number, and a clear statement that you are requesting cancellation of private mortgage insurance. Attach copies of any recent appraisal or evidence of your current loan balance.
Federal law sets firm deadlines once the servicer has your request. If it is approved, the servicer cannot require PMI payments beyond 30 days after the later of the date the written request was received or the date you satisfied any evidence and certification requirements the lender had established.11Consumer Financial Protection Bureau. CFPB Consumer Laws and Regulations HPA If the request is denied, the servicer must send a written explanation of the specific reasons within 30 days.
What to Do If Your Servicer Denies the Request
A denial letter should identify the requirement you missed. The common reasons are a payment history issue, an appraisal that came in lower than expected, or a second lien on the property. If a low appraisal is the problem, you can often wait six to twelve months for further appreciation and try again.
If you believe the servicer is not following the law, file a complaint with the Consumer Financial Protection Bureau. You can submit one online at consumerfinance.gov/complaint or call (855) 411-2372.12Consumer Financial Protection Bureau. Submit a Complaint Include copies of your cancellation request, the denial letter, and supporting documents such as the appraisal. The CFPB forwards complaints to the servicer and requires a response, which often moves things faster than a second letter from you.