What Is PMI? Why to Avoid It If You Can

Private mortgage insurance (PMI) protects your lender if you default on your mortgage. It’s required for conventional mortgages if you put down less than a 20% down payment.

Why do I have to pay to protect my lender? That's the question most people are really asking when they look up PMI, and it's a fair one. Private mortgage insurance covers your lender, not you, if you stop making payments on a conventional loan.

If your down payment is less than 20%, you'll likely pay PMI on a conventional mortgage. It typically costs 0.46% to 1.5% of your original loan amount per year depending on your credit score, down payment, and debt load, which works out to roughly $115 to $375 a month on a $300,000 loan.[1] The range is wide because PMI is priced on risk: two buyers of the same house can pay very different amounts.

PMI is not purely a penalty, though. It's the reason lenders can approve you with 3% or 5% down instead of making you wait until you have saved 20%. Buyers take that trade for all kinds of reasons (a first home, a relocation, a growing household, a market where prices are rising faster than savings), and for many of them, paying PMI beats waiting.

Below, we cover how to avoid PMI, what it really costs, the exact steps to get it removed, and the situations where paying it is the smarter move.

How can I avoid paying PMI?

If you’re trying to avoid paying PMI, as Austin Hudspeth, a Real Estate Broker at Welcome to Whatcom, says, “The obvious answer is to put 20% down, but I recognize that it's a tall order in this housing market.”

How tall? Chris Kuclo, senior director of agent relations and sales at Best Interest Financial, sees the 20% assumption constantly, and says the buyers who actually clear that bar usually are not first-timers.

Hudspeth notes that if you don’t have a 20% down payment, there are alternatives: “VA loans have no PMI if you qualify, or some lenders will even offer lender-paid PMI where they can roll it into a slightly higher interest rate. A few credit unions still do 80-10-10 piggyback loans.” Always talk to your lender about possible alternatives to paying PMI—you might be surprised by your options.

Here are some more details on how to avoid paying PMI if you don’t have a 20% down payment:

• VA loans: VA loans are available to military members and their families. Not only do they have no PMI but they also have no down payment requirements.
• Piggyback loans: These loans arealso called 80/10/10 loans. With a piggyback loan, you take out two loans at once. Your main mortgage covers 80% or less of the purchase price, so you avoid PMI. The second loan is typically 10% to 15% of the purchase price to give your down payment a boost, while the remainder comes from your personal savings. While a piggyback loan can help you avoid PMI, you’ll need to manage two monthly payments and additional closing costs and interest.
• Lender-paid PMI (LPMI): With LPMI, the lender will cover your PMI costs but usually in exchange for a higher interest rate. You’ll have to decide with your loan officer whether the savings through avoiding PMI justify the higher interest rate.
• Professional loan programs: Some lenders offer loan programs specifically for young professionals, like doctors and professors, who may have high student debt loads and limited savings but strong future potential earnings. These lenders will cover your PMI even if you don’t have a 20% down payment.
• FHA loans: Technically, FHA loans don’t have PMI. However, they do have Mortgage Insurance Premiums (MIP), which are similar and can actually cost you more than PMI over the life of your loan. However, if you have low credit, it might be worth paying MIP on an FHA loan if it’s the only mortgage you can qualify for.

Can’t hit 20% on your own? Down payment assistance programs could help you close the gap — and skip PMI entirely.

How much does PMI usually cost?

PMI typically costs 0.46% to 1.5% of your original loan amount annually as of June 2026, according to Urban Institute data, with the lowest rates going to borrowers with credit scores of 760 or higher and the highest rates to scores in the low 600s. [1]

The specific amount varies by lender and mortgage insurer and depends on your credit score, loan amount, down payment, and debt-to-income (DTI) ratio. While that range may not sound like much, it adds up over time.

For example, let’s say two people are considering buying a $300,000 house. The first buyer can only afford a 5% down payment, while the second buyer can put down 15%. Because the first buyer is considered higher risk, their PMI is 0.9%, which results in PMI payments of $2,565 per year or approximately $214 per month. The second buyer is lower risk, so their PMI is just 0.35%, which is $892.50 per year or about $74 per month.

Your debt load moves the number, too. Kuclo points to a file his team sees constantly: a fair-credit borrower carrying meaningful monthly debt.

Because of the wide range in PMI costs, it’s important to shop around and ensure your overall financial picture is as strong as possible before applying for a mortgage. As Alex Olivera, Broker/Owner at Patriot Mortgage Group, says, “If you have excellent credit, I've seen [PMI] be as cheap as $20/mo, but if you have low credit it can be very expensive.”

How do you pay for PMI?

In the vast majority of cases, PMI payments are simply a part of your monthly mortgage payments, alongside your principal, interest, and taxes. In some cases, you may be able to pay for your PMI upfront at closing, by splitting it between monthly and upfront payments, or by negotiating with the seller to have them cover it.

Will I be stuck with PMI for the life of the loan?

No, PMI is designed to be temporary. The Homeowners Protection Act of 1998 specifies clear PMI cancellation rules that lenders must follow. Once you’ve paid off enough of your principal balance that your LTV ratio is at least 80% (which would be equivalent to having a 20% downpayment or equity) you can request PMI be cancelled.[2]

Angela Tourville, Branch Manager at Annie Mac Home Mortgage, advises that, "It's up to the borrower to be attentive to the value and loan balance as the lender won't typically initiate the steps to remove PMI." Note that you’ll need to be current on payments and an appraisal may be required.

Once you’ve reached 78% LTV (or 22% equity), then your lender is legally required to cancel your PMI automatically. That said, check your mortgage statement and make sure they actually do so.

Also, note that these rules don’t apply to MIP for FHA loans. MIP is subject to different rules and is generally harder to remove than PMI. We’ll look closer at the difference between PMI and MIP below.

Is paying PMI on a mortgage worth it sometimes?

Paying PMI Now

Right for you if:

• Home prices in your market are rising faster than you can realistically save.
• The full payment, PMI included, fits comfortably in your budget (think DTI at or below about 43%, ideally closer to 36%).
• You plan to stay in the home for several years, long enough to build equity and cancel PMI.
• Your credit score earns you mid-range or better PMI pricing.

Wrong for you if:

• The payment only works on paper, with no cushion for repairs, taxes, or an income hiccup.
• You qualify for a no-PMI path like a VA loan or a down payment assistance program that closes the gap.
• Prices in your local market are flat or falling, so waiting to save costs you little.
• Your score is just below a pricing tier cutoff and a few months of credit work would cut both your rate and your PMI.

Yes, sometimes paying PMI is worth it. Avoiding PMI no matter what can be a bad financial decision in markets where home values are rising faster than you can save up for a down payment. You could be stuck chasing an ever-rising figure you’d need for a 20% down payment while missing out on the equity you would’ve built if you’d bought a house with a smaller down payment.

Kuclo's advice for buyers staring down a PMI payment is to treat the first mortgage as a starting point, not the loan they'll keep forever.

For example, let’s say you’re saving for a 20% down payment on a $300,000 house. You currently have 10% ($30,000) and you plan on saving the other $30,000 over the next three years. However, if house prices are rising by 5% annually, that house will cost around $350,000 in three years, meaning you’ll need a down payment of $70,000 instead of $60,000. Even worse, you’ll have missed out on the additional $50,000 in equity you could have built during that time, thanks to rising home values.

As Hudspeth says, “I've seen buyers wait three extra years to save up 20% and, in that time, home prices jumped 15%. They ended up paying more for the house than they would have paid in PMI. The math isn't always intuitive. If you're in a market that's appreciating and you're ready to buy, paying PMI to get in the door can actually be a good move.”

» ESTIMATE YOUR PMI: See exactly what you’d pay using our mortgage insurance calculator.

What’s the difference between PMI and MIP?

PMI and Mortgage Insurance Premiums (MIP) serve similar functions in that they both protect the lender in case you default on your mortgage. PMI is for conventional mortgages and MIP is for FHA loans.

While PMI and MIP have similar purposes, they work differently for borrowers. PMI applies to conventional loans where the down payment is less than 20%. Your actual rate will vary depending on your credit score and overall financial profile. Plus, PMI can be removed when you reach 80% LTV.

MIP is required on FHA loans regardless of your down payment amount and costs 1.75% upfront plus a monthly premium. If your down payment is less than 10%, you have to pay MIP for the life of your loan. If your down payment is over 10%, then MIP lasts for 11 years.[3]

Your actual PMI rate will vary with your credit score and overall financial profile.

Because MIP lasts longer than PMI typically does, it’s usually a better idea to choose a conventional mortgage with PMI so long as you have good credit and can get a competitive rate. However, if you end up with an FHA loan, you can eventually refinance to a conventional loan once you reach 80% LTV in order to get rid of the MIP payments.

Get advice from an expert

If you’re debating which mortgage option is right for you, the loan officers at Best Interest Financial can help. They have years of industry expertise and a solution-driven approach to show you which home loans best fit your financial profile and homeownership goals. Get a free 60-second quote from Best Interest today.

FAQ about PMI

Why is my PMI so high?

Your PMI might be high because your down payment was very low, your credit score is low, your DTI is high, or something else in your financial history makes you a higher risk to lenders. PMI varies by lender and is based on your total financial profile. If your credit score is low, you may want to improve it before applying for a mortgage or explore low-credit options, such as FHA loans.

Is it better to put 20% down or pay PMI?

It depends on your goals and your local market. Putting 20% down avoids PMI, but you'll wait longer to save that amount. During that time, you lose out on building equity, especially in an appreciating market.

How much is PMI on a $300,000 mortgage?

PMI usually runs 0.46% to 1.5% of the original loan amount annually, which on a $300,000 mortgage is $1,380 to $4,500 per year, or roughly $115 to $375 per month. [1] PMI can fall outside that range depending on your financial profile and lender.

Does PMI go away after 10 years?

PMI might go away after 10 years, but the timeline depends on your loan, not the calendar. PMI cancellation is based on your loan-to-value ratio. Once you reach 80% LTV, you can request that PMI be dropped. Otherwise, it's canceled automatically at 78% LTV or at your loan's midpoint, whichever comes first (as long as you're current on payments).

Can home value increases remove PMI?

Increased home value can help you remove PMI, but it won't happen automatically. You'll need to contact your lender and request a new appraisal. If your home's value has increased enough that you have at least 20% equity, your lender will likely cancel your PMI. Some lenders require around two years of payments first, and you'll need to be current.

Why you should trust us

This article was written by Michael Warford, a finance writer covering mortgages and homeownership. It was reviewed by Steve Nicastro, managing editor and mortgage and housing finance specialist at Best Interest Financial. Before joining BIF, Steve worked as a licensed real estate agent and investor, closing more than $6 million in transactions and personally buying and selling over 30 homes, many of them financed with less than 20% down. It was edited by Cara Haynes, a homeowner and residential real estate investor with firsthand experience navigating multiple mortgage types.

The in-house expert commentary comes from Chris Kuclo, Senior Director of Agent Relations and Sales at Best Interest Financial (NMLS #926690), who has 15+ years in mortgage lending, drawn from a recorded interview conducted for BIF's 2026 editorial refresh.

Primary sources referenced in this article include Urban Institute PMI pricing data, Fannie Mae's homebuyer FAQ, the Consumer Financial Protection Bureau's Homeowners Protection Act guidance, and HUD's FHA mortgage insurance premium structure.

Editorial process: BIF articles are written by independent finance writers, fact-checked against primary sources, and reviewed by a named expert before publication. We update articles on a rolling basis as rates, regulations, and lending guidelines change.

Disclosure: Best Interest Financial (NMLS #2469842) is a licensed mortgage lender that originates the conventional loans discussed in this article. BIF is a subsidiary of Clever Real Estate. We disclose this because the loan officer quoted above works for BIF, and because BIF stands to benefit if you choose to apply with us. We hold our editorial team to the same standards we'd apply if the recommendation pointed away from our own products.