If you’re buying a home with less than 20% down — which most first-time buyers do — you’ve probably run into three letters that sound vaguely ominous: PMI. Private mortgage insurance is one of those costs that surprises people, partly because the name is misleading. It sounds like it protects you. It doesn’t. But once you understand what PMI is, why it exists, and — crucially — how to get rid of it, it stops being scary and becomes just another line item you can plan around. This guide explains all of it in plain English.
We’ll cover what PMI actually is, who pays it, roughly what it costs, how and when it cancels on a conventional loan, how it’s completely different from FHA’s mortgage insurance (which can stick around for the life of the loan), and the honest question underneath all of it: is it worth buying sooner with PMI, or should you wait and put more down? There’s no single right answer — but there is a right answer for you.
What is PMI, really?
Private mortgage insurance is an insurance policy that protects the lender — not you — in case you stop making payments and the loan goes into foreclosure. You pay the premiums, but the payout goes to the lender if things go wrong.
That feels a little unfair at first glance, so it helps to understand the logic. When you put down less than 20%, you have very little equity — very little of your own money at stake. Statistically, borrowers with small down payments default a bit more often, and lenders lose money when they have to foreclose and resell a home for less than the loan balance. PMI is how lenders offset that added risk. And here’s the upside for you: because the lender is protected, they’re willing to approve loans with small down payments in the first place. Without PMI, the 3%-down and 5%-down conventional loans that get so many first-time buyers into homes probably wouldn’t exist. So while PMI protects the lender, it also quietly opens the door for you.
PMI specifically applies to conventional loans — the standard loans backed by Fannie Mae and Freddie Mac rather than a government agency. You can learn more about those in our conventional loan guide. Government loans like FHA have their own version of mortgage insurance, which we’ll get to.
Who pays PMI, and when?
On a conventional loan, you generally pay PMI whenever your down payment is less than 20% of the home’s price. Put another way, PMI kicks in when your loan-to-value ratio (LTV) — the size of your loan compared to the home’s value — is above 80%.
Loan-to-value is a term worth knowing, because it drives everything about PMI. If you buy a $300,000 home and put down $30,000 (10%), you’re borrowing $270,000 — an LTV of 90%. Once your loan balance drops to 80% of the value ($240,000 in this example), you’re at the threshold where PMI can go away. More on that shortly.
So the short version: put down 20% or more, no PMI. Put down less, expect PMI until you build enough equity. The good news is that PMI is temporary on a conventional loan — it’s a bridge, not a permanent tax.
The common ways PMI is charged
Most people pay borrower-paid monthly PMI, added right onto the monthly mortgage payment. But you may run into a few variations:
- Monthly PMI — the standard; a premium bundled into each payment, and the easiest to cancel later.
- Single-premium PMI — you pay it all up front in one lump sum, which lowers your monthly payment but costs cash at closing and isn’t refundable if you sell or refinance soon.
- Lender-paid PMI (LPMI) — the lender “pays” the PMI in exchange for a slightly higher interest rate. It looks like no PMI, but you’re paying through the rate for the entire life of the loan, and it can’t be cancelled the normal way.
For most first-time buyers, plain monthly PMI is the most flexible choice because you can cancel it once you hit the equity milestones below.
How much does PMI cost?
PMI typically runs somewhere around 0.3% to 1.5% of your loan amount per year. Where you land in that range depends mostly on two things: your credit score and the size of your down payment. Higher credit and a larger down payment mean a lower rate; lower credit and a tiny down payment mean a higher one.
Let’s put real numbers on it. Say you borrow $270,000 and your PMI rate is 0.5% per year. That’s $1,350 a year, or about $113 a month. At a higher rate of 1%, it’s $2,700 a year, or $225 a month. Same loan, very different monthly bite — which is exactly why improving your credit score before you apply can pay off twice: a better mortgage rate and cheaper PMI.
It’s real money, but keep it in perspective. On a home that would otherwise take you years more to save a full 20% for, a hundred-ish dollars a month can be the price of building equity sooner instead of paying rent in the meantime. Whether that trade is worth it is the big question we’ll tackle at the end.
How and when PMI cancels on a conventional loan
This is the best part, and the part people most often don’t know: on a conventional loan, PMI is not forever. Federal law — the Homeowners Protection Act — sets up two clear off-ramps, plus a third path you can trigger yourself.
1. You can request cancellation at 80% LTV
Once your loan balance falls to 80% of the home’s original value — meaning you’ve built 20% equity based on your purchase price — you can ask your lender in writing to cancel PMI. You’ll usually need to be current on payments and have a good history, and the lender may ask for an appraisal to confirm the home’s value hasn’t dropped. This is the milestone to circle on your calendar, because the lender won’t always volunteer it — you have to request it.
2. It cancels automatically at 78% LTV
If you don’t request cancellation, the law requires your lender to automatically remove PMI once your balance reaches 78% of the original value, as long as you’re current on payments. This happens based on your original amortization schedule — no appraisal, no request needed. It’s the safety net, though waiting for it means paying PMI a little longer than you had to.
3. You can speed it up with equity or extra payments
You don’t have to wait for the scheduled dates. If your home’s value has risen or you’ve made extra principal payments, you may reach the 20% equity mark early and request cancellation based on a current appraisal. Some buyers deliberately pay down principal faster specifically to kill PMI sooner. And if your neighborhood has appreciated significantly, a fresh appraisal alone might get you there.
The headline to remember: request at 80%, automatic at 78%. Knowing those two numbers can save you real money, because plenty of homeowners overpay PMI for months simply because no one told them to ask.
PMI vs. FHA mortgage insurance (MIP): a big difference
Here’s where a lot of buyers get tripped up. FHA loans also charge mortgage insurance, but it works differently — and it doesn’t play by the same cancellation rules. FHA’s version is called MIP (mortgage insurance premium), and it comes in two parts.
- Upfront MIP: a one-time premium of 1.75% of the loan amount, usually rolled into the loan balance at closing.
- Annual MIP: an ongoing premium (currently around 0.55% per year for most 30-year FHA loans) paid monthly.
The critical catch: on most FHA loans with the minimum down payment, annual MIP lasts the entire life of the loan. It does not fall off at 78% or 80% the way conventional PMI does. The only ways to escape it are to put down 10% or more up front (in which case MIP drops off after 11 years) or to refinance out of the FHA loan entirely into a conventional loan once you have enough equity.
So the comparison looks like this:
- Conventional PMI: cancellable. Request at 80% LTV, automatic at 78%. Goes away once you build equity.
- FHA MIP: often permanent (with minimum down payment), plus a 1.75% upfront charge. Usually only removed by refinancing.
This is one reason a conventional loan with PMI can be cheaper in the long run than an FHA loan, especially for buyers with decent credit — the PMI eventually disappears, while FHA MIP may not. That said, FHA loans are often easier to qualify for with lower credit scores or higher debt, so the right choice depends on your situation. Compare the details in our FHA loan guide and weigh both against your credit and budget.
Is it worth buying sooner with PMI, or waiting?
Now the honest question. Should you buy now with a small down payment and pay PMI, or wait a year or two to save 20% and skip it? Like most money questions, it depends — and we’ll give you the real tradeoffs, not a sales pitch.
When buying sooner with PMI makes sense
- You’re paying rent anyway. If waiting means two more years of rent, that money is gone forever, while PMI is temporary and disappears once you build equity. Buying can convert “gone” money into equity, even with PMI along for the ride.
- Home prices are rising in your area. If homes are appreciating faster than you can save, waiting to hit 20% can be a moving target — prices may outrun your savings.
- You’d drain every dollar to reach 20%. Emptying your savings to avoid PMI can leave you with no cushion for emergencies or repairs. A little PMI can be cheaper than the stress (and cost) of an unfunded emergency.
When waiting is the smarter move
- You’re close to 20% already. If a few more months of saving gets you there, skipping PMI entirely may be worth the short wait.
- Your credit needs work. Waiting to raise your score can lower both your interest rate and your PMI rate — a double win. See our credit score guide.
- Buying would stretch you thin. If the only way to afford the payment is with zero margin, waiting to strengthen your finances protects you more than any interest-rate timing.
The reassuring truth is that PMI is rarely a dealbreaker either way. It’s a manageable, temporary cost on conventional loans — a tool that lets you buy with less cash up front, not a penalty for being “not ready.” Run your own numbers with our calculators, and remember that down payment help exists too: our down payment assistance resources can shrink the cash gap that made PMI feel unavoidable in the first place.
Frequently asked questions
Does PMI protect me or the lender?
PMI protects the lender, not you. You pay the premiums, but if you default and the home is foreclosed, the insurance pays out to the lender. The benefit to you is indirect but real: because lenders are protected, they’ll approve loans with down payments well below 20%, which is what lets many first-time buyers get into a home at all.
How do I get rid of PMI?
On a conventional loan, you can request cancellation once your loan balance reaches 80% of the home’s original value, and it cancels automatically at 78% as long as you’re current on payments. You can reach these milestones faster by making extra principal payments or if your home’s value rises. FHA mortgage insurance usually can’t be cancelled this way — you typically have to refinance into a conventional loan.
How much will PMI add to my payment?
Roughly 0.3% to 1.5% of your loan amount per year, depending mostly on your credit score and down payment. On a $270,000 loan, that’s about $68 to $340 a month. A higher credit score and a larger down payment both push your PMI rate toward the low end of that range.
Is FHA mortgage insurance the same as PMI?
No. FHA loans charge MIP, which includes a 1.75% upfront premium plus an annual premium. The big difference is that FHA’s annual MIP typically lasts the life of the loan when you make the minimum down payment, while conventional PMI cancels once you build 20–22% equity. That makes conventional PMI cheaper over time for many borrowers with solid credit.
Can I avoid PMI without putting 20% down?
Sometimes. Some lenders offer lender-paid PMI in exchange for a higher interest rate, or “piggyback” loan structures that split the financing. VA loans (for eligible veterans and service members) and USDA loans (for eligible rural buyers) require no PMI at all despite low or zero down payments. But for most conventional buyers under 20% down, standard PMI is the simplest and often cheapest path.
Should I wait to save 20% just to avoid PMI?
Not necessarily. If you’re paying rent and home prices are rising, buying sooner with PMI can build equity faster than waiting — and conventional PMI eventually goes away. But if you’re close to 20%, your credit needs work, or buying would leave you with no cushion, waiting can be the smarter play. Run both scenarios before deciding.
Does PMI ever come back after it’s cancelled?
No. Once PMI is properly cancelled on a conventional loan, it’s gone for that loan — even if the home’s value later dips. The one way it could reappear is if you refinance into a new loan with less than 20% equity, since that new loan would have its own PMI. Otherwise, cancellation is permanent.
This article is for general education, not financial advice. PMI rates, MIP figures, and program rules change over time and vary by lender and loan — confirm current numbers with a licensed lender before making decisions.
Sources: Consumer Financial Protection Bureau (consumerfinance.gov), Fannie Mae (fanniemae.com), Freddie Mac (freddiemac.com), U.S. Department of Housing and Urban Development (hud.gov).
Last reviewed July 2026.