If you’re putting down less than 20% on a conventional home loan, there’s a good chance you’ll be required to pay for Private Mortgage Insurance, or PMI. It’s one of the most misunderstood costs in home buying — many first-time buyers don’t realize it exists until they see it on their loan estimate. Here’s what it actually is, what it costs, and how to avoid or eliminate it.
What PMI Actually Protects
This is the most important thing to understand: PMI protects the lender, not you. If you default on your loan and the lender forecloses, PMI reimburses the lender for some of their losses. It does nothing to protect your equity, your credit, or your ability to stay in the home.
Lenders require it because a smaller down payment means more risk — you have less equity cushion if home values dip or you default. PMI lets lenders offer loans to buyers with smaller down payments while managing that added risk.
How Much Does PMI Cost?
PMI typically costs 0.5% to 1.5% of your loan amount per year, divided into monthly payments. On a $300,000 loan, that’s roughly $125 to $375 per month — a significant addition to your PITI payment (see our guide on Understanding PITI for the full breakdown of what makes up your payment).
The exact rate depends on:
- Your credit score (higher score = lower PMI rate)
- Your loan-to-value ratio (the smaller your down payment, the higher the rate)
- The PMI provider and policy structure your lender uses
Strategies to Avoid PMI Entirely
1. Put down 20% or more. This is the simplest and most direct way to avoid PMI on a conventional loan. Use our Affordability Calculator to see how a larger down payment changes your numbers and whether saving a bit longer makes sense for your situation.
2. Look into VA loans. If you’re a veteran, active-duty service member, or eligible surviving spouse, VA loans require no PMI and often no down payment at all — one of the most overlooked benefits available to eligible borrowers.
3. Consider a piggyback loan (80/10/10). This structure uses a primary mortgage for 80% of the home price, a second loan for 10%, and a 10% down payment — avoiding PMI while still putting down less than 20% in cash. This strategy has tradeoffs (a second loan with its own rate and terms) and is best discussed directly with a loan officer.
4. Ask about lender-paid PMI. Some lenders offer to cover PMI in exchange for a slightly higher interest rate. This can sometimes lower your total monthly payment compared to separate PMI, but it also means you can’t cancel it later the way you can with borrower-paid PMI — run both scenarios through our Mortgage Calculator before deciding.
How to Remove PMI Once You Have It
If you already have PMI, you’re not stuck with it forever. Under the Homeowners Protection Act, lenders are required to automatically cancel PMI once your loan balance reaches 78% of the home’s original value, assuming you’re current on payments.
You can request early cancellation once you reach 80% loan-to-value — either through normal payments over time or because your home’s value has appreciated. To request early removal:
- Contact your loan servicer and ask about their PMI removal process
- You may need to pay for a new appraisal to confirm current home value
- Your payment history must typically be current with no late payments in the past 12 months
Use our Amortization Calculator to estimate exactly when your loan balance will cross the 80% and 78% thresholds based on your original loan terms — this gives you a target date to start the conversation with your lender.
Is PMI Always Bad?
Not necessarily. If PMI is what allows you to buy a home years sooner than waiting to save a full 20% down payment, the cost may be worth it — especially in a market where home prices and rents are rising faster than you can save. The key is understanding the cost upfront and having a plan to remove it once you’ve built sufficient equity, rather than being surprised by it.
For additional consumer protections and details on PMI cancellation rights, see the Consumer Financial Protection Bureau’s PMI guide.