What PMI actually is (and is not)
Private Mortgage Insurance is an insurance policy that protects the LENDER, not you, if you default on the loan. It is required on conventional loans when your down payment is less than 20 percent of the purchase price.
PMI is NOT the same as homeowners insurance. Homeowners insurance protects YOU against fire, theft, and liability. PMI protects the BANK against losses on the loan.
When you need it
Conventional loans: required below 20 percent down. Drops off automatically at 78 percent loan-to-value (22 percent equity).
FHA loans: use FHA Mortgage Insurance Premium (MIP), not PMI. Lifetime for most FHA loans put down with less than 10 percent. Stays for 11 years on FHA loans with 10 percent or more down.
VA loans: no PMI, ever. Replaced by the upfront VA funding fee (often financed into the loan).
USDA loans: have their own mortgage insurance structure (annual fee plus upfront guarantee fee).
How much does PMI cost
PMI premiums range from approximately 0.3 percent to 1.5 percent of the loan amount per year, depending on:
- Your credit score (higher score = lower PMI)
- Your loan-to-value ratio (closer to 20 percent down = lower PMI)
- The loan type and term
- Whether you are borrower-paid (monthly PMI) or lender-paid (LPMI built into rate)
On a $500,000 conventional loan with 10 percent down and a 720 credit score, monthly PMI typically runs $150-$250 per month. On the same loan with a 760 credit score, PMI drops to roughly $100-$170.
When PMI drops off automatically
Federal law (Homeowners Protection Act) requires PMI to drop off when your loan-to-value reaches 78 percent of ORIGINAL purchase price. The lender is required to remove it automatically.
You can request PMI removal earlier, at 80 percent LTV, but you have to ask. Lenders typically want a current appraisal to confirm value if you are relying on appreciation.
How to avoid PMI without 20 percent down
- VA loan if you qualify. No PMI ever.
- Piggyback loan structure (80/10/10): first mortgage at 80 percent LTV, second mortgage at 10 percent, your down payment at 10 percent. Avoids PMI but introduces a second mortgage payment.
- Lender-Paid PMI (LPMI): the lender pays the PMI in exchange for a higher interest rate. Can make sense for short-hold borrowers.
- Wait and save more. If your timeline allows, getting to 20 percent down eliminates PMI entirely.
When pushing through PMI makes sense
Saving an additional 10 percent down payment ($50,000 on a $500K home) typically takes years. During those years, you pay rent. Rent goes to the landlord, not your equity. The math often favors buying with PMI now versus waiting to avoid PMI: you get into a home, build equity, watch appreciation, and PMI drops off in 5-10 years on its own.
Per the Federal Reserve Survey of Consumer Finances (2022), the median U.S. homeowner held approximately $396,200 in net worth compared to approximately $10,400 for the median renter. PMI is a cost; renting is also a cost. Run the math both ways.
Frequently Asked Questions
Can I write off PMI on my taxes?
PMI was tax-deductible under certain conditions through 2021. Subsequent extensions have been intermittent. Consult your CPA for current-year tax treatment.
Is FHA MIP cheaper or more expensive than conventional PMI?
Depends on credit score. At 720+ credit with 10%+ down, conventional PMI usually beats FHA MIP over a long hold period. At 620-700 credit with minimum down, FHA MIP can be comparable or cheaper. We run the math both ways.
Can I remove PMI by paying extra principal?
Yes. Once your loan balance drops to 78-80% LTV of original purchase price, you can request PMI removal. Extra principal payments accelerate this.
Does refinancing automatically remove PMI?
It can, if the new loan amount is at or below 80% LTV based on the current appraised value. Common reason for refinancing in appreciating markets.
What if my home appreciates rapidly?
You can request PMI removal earlier than the automatic 78% LTV threshold by paying for a new appraisal. If the appraised value supports 80% LTV, the lender typically must remove PMI.
Want a real answer for your situation?
Connect with Ken Clark Jr. and the #ChampionsofLoans team at PRMG Mortgage. The right strategy starts with a conversation, not a guess.
Sources: Consumer Financial Protection Bureau; Federal Reserve Survey of Consumer Finances, 2022.
This article is for educational purposes only and is not a commitment to lend or guarantee of approval. Loan programs, rates, terms, and eligibility requirements are subject to change. Equal Housing Opportunity. PRMG Mortgage. NMLS 225375. Ken Clark Jr. NMLS #225375.
