How to Avoid PMI on Your Mortgage: Practical Ways to Reduce or Eliminate It
Meta description: Learn how to avoid private mortgage insurance (PMI), compare low-down-payment strategies, and understand when PMI can be canceled on a conventional mortgage.
Private mortgage insurance can add a noticeable cost to a monthly mortgage payment, especially when a buyer puts less than 20% down on a conventional loan. It does not protect the homeowner; it helps protect the lender if the borrower stops making payments. Buyers can sometimes avoid PMI at closing, choose a loan with a different insurance structure, or remove PMI later as they build equity. The right approach depends on the loan terms, available cash, and total borrowing costs.
What PMI Is—and When It Usually Applies
Private mortgage insurance, commonly called PMI, is generally required on a conventional mortgage when the down payment is less than 20% of the home’s purchase price or appraised value, subject to lender rules. The exact threshold can depend on the loan program and transaction. PMI may be paid monthly, as a one-time charge at closing, or through a lender-paid arrangement that affects the interest rate.
PMI is different from homeowners insurance. Homeowners insurance protects against covered property losses; PMI primarily protects the lender. It is also distinct from mortgage insurance premiums on FHA loans and guarantee fees on certain government-backed loans. Those programs have separate rules and costs.
PMI is not necessarily permanent. On many eligible conventional loans, borrowers can request cancellation after reaching specified equity and meeting payment and loan requirements. Federal law also provides certain automatic termination protections for many mortgages originated on or after July 29, 1999. Loan type, investor rules, and state law can affect how the rules apply, so borrowers should check their mortgage documents and contact their servicer.
How to Avoid PMI When Buying a Home
Make a 20% Down Payment
The most straightforward way to avoid borrower-paid PMI on a conventional mortgage is generally to make a down payment of at least 20% of the home’s purchase price. On a $400,000 home, that would mean putting $80,000 down and borrowing $320,000, before accounting for closing costs and any other transaction details. A larger down payment can also reduce the loan balance and monthly principal-and-interest payment.
However, using all available savings to reach 20% may not be the best choice for every buyer. Homeownership brings repair costs, taxes, insurance, and other expenses. A buyer should compare the cost of PMI with the value of keeping cash available for emergencies, moving expenses, and maintenance.
Use a Piggyback Loan
A piggyback loan combines a first mortgage with a second mortgage or home-equity line of credit. A common structure is called an 80-10-10: the first mortgage covers 80% of the price, the second loan covers 10%, and the buyer contributes 10%. Because the first mortgage is at 80% loan-to-value (LTV), PMI may not be required on that loan.
The second loan is still debt, often with a higher interest rate than the first mortgage. It may have a variable rate, separate fees, or a payment that changes over time. The lender also evaluates the borrower’s ability to repay both loans. Comparing the combined monthly payments and total costs against a single mortgage with PMI is essential.
Compare Low-Down-Payment Programs
Some conventional mortgage programs allow eligible borrowers to put down less than 20%, but they may still charge mortgage insurance. Program terms, down-payment requirements, income limits, credit standards, and insurance pricing vary. A low-down-payment program can make a purchase possible sooner, but it should be compared with other options based on the full payment and expected time in the home—not just the amount due at closing.
First-time homebuyer programs offered by state housing finance agencies, local governments, and nonprofit organizations may provide down-payment assistance. Assistance can come as a grant, a forgivable loan, or a repayable second mortgage. These programs do not automatically eliminate PMI; their rules and interaction with the first mortgage differ. Buyers should confirm whether the assistance affects the loan’s LTV calculation or creates another monthly obligation.
Consider a VA Loan if Eligible
Eligible veterans, service members, and certain surviving spouses may qualify for a VA-backed home loan. VA loans generally do not require monthly PMI, even when the borrower makes a down payment below 20%. A VA funding fee may apply, although some borrowers are exempt. The fee may be paid at closing or financed, subject to program rules.
A VA loan is not automatically the least expensive option for every buyer. The borrower should compare the interest rate, funding fee, closing costs, and eligibility requirements with those of other available loans. The VA program’s official guidance explains current eligibility and funding-fee rules.
Compare FHA and USDA Costs Carefully
FHA loans use mortgage insurance premiums (MIP), not conventional PMI. Depending on the loan’s terms, FHA insurance may include an upfront premium and an annual premium paid over time. For many FHA borrowers, annual MIP does not end simply because the home reaches 20% equity; the duration depends on factors such as the loan-to-value ratio at origination and loan term. Refinancing into a conventional loan may remove FHA MIP if the borrower qualifies, but refinancing has costs and is not guaranteed to save money.
USDA loans for eligible rural areas and borrowers generally use an upfront guarantee fee and an annual fee rather than conventional PMI. Eligibility and fees are set by the program and can change. Buyers should compare the complete cost of each loan type, including insurance or guarantee charges, interest, fees, and any required down payment.
How to Compare Mortgage Options Without PMI
A loan advertised as having “no PMI” may still cost more in another way. For example, lender-paid mortgage insurance typically means the lender pays the insurance premium in exchange for a higher interest rate or other pricing adjustment. The borrower may not see a separate PMI line on the monthly statement, but the increased rate can raise payments over the life of the loan.
Buyers can compare estimates using the Loan Estimate issued by each lender. Review the interest rate, monthly principal and interest, mortgage insurance, upfront charges, lender credits, and estimated cash to close. Ask for quotes using the same loan amount, rate-lock period, down payment, and loan type where possible. A consistent comparison makes it easier to see whether avoiding PMI truly lowers the total cost.
| Option | Potential advantage | Important trade-off |
|---|---|---|
| 20% down on a conventional loan | Usually avoids borrower-paid PMI | Requires substantial cash and reduces liquid savings |
| Piggyback loan | May avoid PMI on the first mortgage | Adds a second loan, potentially with a higher or variable rate |
| Lender-paid PMI | No separate monthly PMI charge | May come with a higher interest rate and last for the loan term |
| VA loan, if eligible | Generally no monthly PMI | Funding fee may apply; eligibility rules apply |
| FHA or USDA loan | May offer accessible financing for eligible borrowers | Uses program-specific insurance or guarantee fees |
How to Cancel PMI After Closing
Homeowners with a conventional mortgage may be able to cancel PMI after building equity. Under the federal Homeowners Protection Act, borrowers with many covered mortgages can generally submit a written request to cancel borrower-paid PMI when the principal balance is scheduled to reach 80% of the home’s original value. “Original value” generally means the lower of the purchase price or the original appraised value for a purchase loan, or the appraised value at origination for a refinance.
Cancellation is not always automatic at the 80% point. To qualify for borrower-requested cancellation under the federal rules, the borrower generally must make the request in writing, have a good payment history, be current on payments, and satisfy the lender’s requirement that the property’s value has not declined. The lender may also require evidence that there are no subordinate liens, such as a second mortgage, depending on applicable rules and loan terms.
For many covered loans, the servicer must automatically terminate PMI when the principal balance is scheduled to reach 78% of the home’s original value, provided the borrower is current. If the borrower is not current at that point, termination generally occurs when payments become current. A separate final termination rule generally applies at the midpoint of the loan’s amortization schedule if the borrower is current, even if the balance has not reached 78%. These federal protections have exceptions, so the servicer should confirm which requirements apply to a particular loan.
Ask About Cancellation Based on Current Value
A rise in home value may let some borrowers request PMI cancellation earlier than they could using the original purchase price. However, cancellation based on current value is generally governed by the mortgage investor’s servicing rules and lender requirements; the federal 80% and 78% provisions are based on original value. Investors such as Fannie Mae and Freddie Mac have policies that can allow cancellation using a new valuation, with conditions that may include a minimum time since closing, a required equity level, payment history, and limits on how the property’s value is established.
Requirements differ by loan and servicer. Some policies may require more equity if the loan is relatively new, while documented improvements can affect eligibility under certain rules. A homeowner should ask the servicer for its current written PMI cancellation policy before paying for an appraisal. The servicer may require an appraisal or other valuation and may specify an approved provider.
Steps to Take if the Goal Is to Remove PMI
- Identify the loan type. Check the closing documents or ask the servicer whether the loan is conventional, FHA, VA, or USDA. PMI cancellation rules do not apply identically to every program.
- Find the original value and current balance. Use the closing documents and latest mortgage statement to estimate the LTV ratio. LTV is the loan balance divided by the property value used for the calculation.
- Review the payment record. Late payments or delinquency can delay cancellation or affect eligibility under the applicable rules.
- Contact the loan servicer. Ask for the cancellation requirements, whether the request must be in writing, and whether an appraisal, fee, or other documentation is required.
- Continue paying as billed. Do not stop paying PMI until the servicer confirms in writing that it has been canceled and states when the change takes effect.
Common Mistakes to Avoid
- Confusing PMI with homeowners insurance: PMI does not replace coverage for damage to the home or belongings.
- Assuming 20% equity cancels every type of mortgage insurance: FHA MIP and USDA fees have different rules from conventional PMI.
- Paying for an appraisal too early: The servicer may require a specific valuation process or find that the borrower does not meet other criteria.
- Choosing a higher-rate loan solely to avoid a PMI line item: A higher interest rate may cost more than monthly PMI over the time the borrower expects to keep the mortgage.
- Draining emergency savings for a larger down payment: A lower loan balance can help, but a household also needs cash for repairs and unexpected expenses.
Where to Verify Current Rules
Loan terms and servicing policies can change, and individual mortgages may have additional requirements. The Consumer Financial Protection Bureau (CFPB) provides consumer information about mortgage insurance and the Homeowners Protection Act. Fannie Mae and Freddie Mac publish servicing guidance for loans they own or guarantee. The U.S. Department of Veterans Affairs, Federal Housing Administration, and U.S. Department of Agriculture provide official program information for VA, FHA, and USDA financing, respectively.
For a specific mortgage, the servicer is the best starting point for current cancellation instructions. A licensed mortgage professional can also compare loan estimates, but the borrower should review the written disclosures and confirm any quoted PMI, MIP, funding fee, or guarantee fee directly in the loan documents.