PMI Insurance

Private mortgage insurance (PMI) protects lenders when borrowers make down payments less than 20%. While PMI enables homeownership with smaller down payments, it adds significant cost to your monthly payment. Understanding PMI helps you plan for this expense and know when you can eliminate it.

When is PMI Required?

PMI is typically required when your down payment is less than 20% of the home's purchase price. Conventional loans from Fannie Mae and Freddie Mac mandate PMI in these cases. FHA loans have their own mortgage insurance requirements regardless of down payment.

PMI Costs

PMI typically costs 0.5% to 1% of your loan amount annually. For a $300,000 loan, this means $1,500 to $3,000 per year, or $125 to $250 monthly. Costs vary based on credit score, loan type, and loan-to-value ratio.

Eliminating PMI

Once your loan balance reaches 78% of your home's original value, lenders must automatically cancel PMI. You can request cancellation at 80% of original value if your payments are current. This requires an appraisal to confirm your home's value.

Strategies to Avoid PMI

  • Make a 20% or larger down payment
  • Use a piggyback loan (80/10/10 structure)
  • Choose lender-paid mortgage insurance
  • Build equity faster with extra payments