Financing

What is PMI and how do you avoid it?

By the HomeBuyerMap team · Updated October 20, 2026

PMI stands for Private Mortgage Insurance. It's a monthly premium required by most conventional lenders when your down payment is less than 20% of the home's purchase price. PMI protects the lender — not you — in case you default on the loan. Despite that, it's the buyer who pays for it.

How much does PMI cost?

PMI typically costs 0.5–1.5% of your original loan amount per year, paid in monthly installments. The exact rate depends on your credit score, down payment, loan type, and lender. On a $300,000 loan, 1% PMI = $3,000/year = $250/month. With a 5% down payment and good credit, expect 0.7–0.9%. With 15% down and excellent credit, closer to 0.3–0.5%.

FHA mortgage insurance vs conventional PMI

These are often confused but work differently. FHA has two components: an upfront MIP of 1.75% (added to the loan balance at closing) and annual MIP paid monthly (0.15–0.75%; most borrowers pay 0.50–0.55%). FHA MIP stays for the life of the loan if you put less than 10% down — the only way to remove it is to refinance into a conventional loan. With 10% or more down, it drops off after 11 years.

Conventional PMI has no upfront premium. You can request cancellation once your balance reaches 80% of the home's original value, and the lender must remove it automatically at 78% (22% equity) based on your scheduled payments. Equity from appreciation counts only if you request removal with a new appraisal.

How to remove PMI

Pay it down: PMI automatically cancels when your loan balance reaches 78% of the home's original value (the lower of the purchase price or appraisal) (based on your amortization schedule). You can request cancellation at 80%.

Get a new appraisal: If your home has appreciated, your equity position may already be at 20%. Request a new appraisal — if it supports 20% equity, many lenders will remove PMI. There's typically a fee ($300–$500) and some lenders require you to have the loan for at least 2 years.

Refinance: If rates have improved or your home has appreciated significantly, refinancing into a new conventional loan at 80% LTV eliminates PMI entirely.

Lender-paid PMI (LPMI): The lender pays the PMI in exchange for a higher interest rate. This can make sense if you plan to sell or refinance within a few years, but you can't cancel LPMI — it's baked into the rate for the life of the loan.

Is it ever worth paying PMI?

Often yes. Waiting to save 20% down while paying rent means you're missing out on appreciation and building someone else's equity. In many markets, the cost of PMI is less than what you'd pay in additional rent during the years it takes to save the difference. Run the numbers for your specific market and timeline.

Frequently asked questions

Can I deduct PMI on my taxes?

Starting with the 2026 tax year, yes for many buyers. The 2025 tax law (the One Big Beautiful Bill Act) permanently restored the deduction for PMI and FHA mortgage insurance for taxpayers who itemize, with the benefit phasing out at higher incomes. Confirm your situation with a tax professional.

Does PMI cover me if I lose my job?

No. PMI protects the lender, not you. If you can't make payments, you're still responsible for them. Some homebuyers purchase separate mortgage protection insurance (MPI) that covers payments in case of disability or job loss, though this is separate from PMI.

What's an 80-10-10 loan?

An 80-10-10 is a piggyback loan structure where you take an 80% first mortgage, a 10% second mortgage (HELOC or home equity loan), and put 10% down — avoiding PMI entirely. Rates on the second mortgage are higher, so run the math before assuming it's cheaper than PMI.

This article is educational and general in nature. Specifics vary by lender, loan program, and location. Confirm details with a licensed professional.