Financing
Last updated: Jan 20255 min readPrivate Mortgage Insurance (PMI)
What it is, how to avoid it, and when it goes away
PMI protects lenders when you put down less than 20%. While it adds to your monthly payment, it also makes homeownership accessible sooner.
1How PMI Works
Understanding the basics:
- Required when down payment is less than 20%
- Typically costs 0.5-1% of loan amount annually
- Added to your monthly mortgage payment
- Protects the lender, not you
- Can be removed once you build 20% equity
2Ways to Avoid PMI
Options if you want to skip PMI:
- Put 20% down: The traditional approach
- Piggyback loan (80-10-10): Second loan covers part of down payment
- Lender-paid PMI: Higher rate, but no separate PMI payment
- VA loan: No PMI for eligible veterans
- Doctor/professional loans: Some careers qualify for no-PMI loans
3Getting Rid of PMI
How to remove PMI once you have it:
- Automatic cancellation: At 78% LTV (by law)
- Request removal: At 80% LTV (you must ask)
- Refinance: If home value increased significantly
- Reappraisal: Prove your home is worth more
Pro Tips
- FHA loans have their own mortgage insurance that's harder to remove
- Track your home's value—appreciation can help you cancel PMI sooner
- Making extra principal payments builds equity faster
- Compare the cost of PMI vs. a higher interest rate