How to avoid PMI: Your mortgage options explained

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

Learning how to avoid PMI can help you balance the money you bring to closing with the amount you pay each month. Private mortgage insurance usually applies when you buy a home with a conventional loan and put less than 20% down. It protects the lender, not you, but it can also help you buy with less money upfront.

Avoiding PMI isn’t automatically the best move in every situation. Compare each option’s upfront costs, monthly costs, and long-term trade-offs. You might put 20% down, choose another loan structure, pay PMI another way, or accept it temporarily so you can buy sooner.

Key takeaways:

• A down payment of at least 20% is the most direct way to avoid borrower-paid PMI on a conventional loan.
• Lender-paid PMI, single-pay PMI, piggyback financing, and government-backed loans can remove a separate monthly PMI charge, but each has different costs and requirements.
• For many covered loans, you can request PMI cancellation when the balance reaches 80% of the home’s original value. Automatic termination generally occurs when the balance is scheduled to reach 78%, provided your payments are current.

What is PMI, and when is it required?

Private mortgage insurance, or PMI, is coverage arranged by a mortgage lender and provided by a private insurance company. It reimburses the lender for certain losses if a homeowner stops making mortgage payments.

PMI usually applies to a conventional mortgage when the down payment is less than 20% of the purchase price. It may also apply when you refinance a conventional loan and have less than 20% equity.

PMI isn’t the same as homeowners insurance, which covers certain losses involving your home and belongings. It also differs from mortgage protection insurance, a separate product intended to help repay a mortgage under specific circumstances.

PMI vs. MIP

FHA loans use a mortgage insurance premium (MIP) instead of private mortgage insurance.¹ Most FHA loans include an upfront MIP and an annual MIP collected through monthly installments.

For FHA case numbers assigned on or after June 3, 2013, annual MIP generally lasts 11 years when the original loan-to-value ratio is 90% or less. When the original LTV is more than 90%, annual MIP generally lasts for the loan term.

That difference matters when comparing PMI vs. MIP. The federal PMI cancellation rules covered later in this article don’t apply to FHA MIP.

How much does PMI cost?

PMI can cost about 0.1% – 2% of the loan amount per year. Your actual premium may depend on your down payment, credit profile, loan amount, loan term, and mortgage type.

Because PMI is based on the amount borrowed rather than the home price alone, two people buying equally priced homes may pay different premiums. One could make a larger down payment or qualify for a lower insurance rate.

How to estimate PMI

You can create a broad annual estimate with this formula:

Loan amount × Estimated annual PMI rate = Estimated annual PMI

Then divide the annual result by 12:

Estimated annual PMI ÷ 12 = Estimated monthly PMI

For example, multiplying a $270,000 loan by 0.5% gives an estimated annual PMI cost of $1,350. Dividing that amount by 12 gives an estimated monthly cost of $112.50.² This is only an illustration. A lender or mortgage insurer must provide the premium for a specific loan.

You can also use a down payment calculator to compare how changing the down payment affects the amount you need to borrow.

PMI cost examples by home price

The home price by itself isn’t enough to calculate PMI. You also need the down payment, loan amount, and insurance rate. The examples below assume a 10% down payment and use the 0.1% – 2% annual range.

These figures isolate the possible PMI expense. They don’t include principal, interest, property taxes, homeowners insurance, homeowners association dues, or other costs. Your actual premium will be based on the insurer and details of the loan.

How to avoid monthly PMI on a mortgage loan

You have several ways to avoid a separate monthly PMI payment. Some eliminate the insurance requirement. Others move the cost into an upfront premium, a higher interest rate, a second mortgage, or another loan program’s fee structure.

Put 20% down

Making a 20% down payment is the most straightforward way to avoid PMI on a conventional loan. A $400,000 home would require an $80,000 down payment to reach that threshold, while a $300,000 home would require $60,000.

A larger down payment also reduces the amount you borrow. Before committing that much cash, consider what you’ll still have available for closing costs, repairs, moving expenses, and emergency savings. Avoiding PMI may provide less value if it leaves you without a comfortable financial cushion.

Explore lender-paid PMI or a no-PMI loan

With lender-paid PMI, the lender pays the mortgage insurance premium. You typically accept a higher mortgage interest rate in exchange, so the cost moves into the financing terms rather than appearing as a separate monthly charge.

Lender-paid PMI can’t be canceled under the Homeowners Protection Act’s borrower-requested or automatic-termination rules. The higher-rate structure generally ends only when the mortgage is refinanced, paid off, or otherwise terminated.

A loan advertised as “no PMI” may use a similar structure. Compare the interest rate, annual percentage rate, closing costs, monthly payment, and likely cost over the number of years you expect to keep the mortgage.

Single-pay PMI

Single-pay PMI lets you pay the mortgage insurance premium at closing instead of through a separate monthly charge. With this structure, you keep the same mortgage rate and monthly principal-and-interest payment while paying the premium upfront, in contrast to lender-paid arrangements that come with a higher rate.

Ask if you get a refund if you pay more toward principal to get to 20% equity faster, as the terms may or may not allow for a refund.

Use a piggyback loan

A piggyback loan combines a first mortgage with a second mortgage taken out at the same time. An 80-10-10 arrangement uses an 80% first mortgage, a 10% second mortgage, and a 10% down payment. An 80-15-5 variation uses a 15% second mortgage and a 5% down payment.

The second mortgage may be a home equity loan or home equity line of credit (HELOC).³ It will have its own payment, interest rate, closing costs, and repayment terms. The rate may be higher or adjustable, and the second lender may need to approve certain future refinancing arrangements.

Rocket Mortgage doesn’t currently offer HELOCs or piggyback mortgages.

Consider a VA or USDA loan

VA loans don’t require PMI and often allow eligible home buyers to purchase without a down payment.⁴ Eligibility depends on service history, duty status, and other requirements. A Certificate of Eligibility shows a lender that you qualify. Most clients pay a one-time VA funding fee unless they meet an exemption.

USDA loans can provide 100% financing to eligible low- and moderate-income home buyers purchasing a primary residence in an eligible rural area. They don’t charge conventional PMI, but they use upfront and annual guarantee fees. Rocket Mortgage doesn’t currently offer USDA loans.

A VA funding fee or USDA guarantee fee may cost less than PMI in some situations. Compare eligibility, upfront costs, monthly costs, and how long you expect to keep the mortgage before choosing a loan.

Receive gift funds or down payment assistance

Eligible gift funds may help you make a larger down payment. For loans secured by a primary residence or second home, a qualifying personal gift can fund some or all of the down payment, closing costs, or required reserves, subject to the loan’s contribution and documentation rules.

The lender will generally need a gift letter and evidence showing where the money came from and how it was transferred. When program rules require a true gift, the funds can’t be a disguised loan.

Down payment assistance may come from employers, municipalities, states, counties, housing finance agencies, nonprofits, federal agencies, or other eligible providers.

Assistance can take the form of a grant, deferred loan, forgivable loan, or traditional second loan. Review whether repayment, occupancy, income, home buyer education, or resale requirements apply.

Talk to your lender

Ask lenders to price several structures using the same purchase price and down payment. One quote could include monthly PMI, another might use lender-paid PMI, and a third could use a lender-specific no-PMI program.

Some lenders also offer portfolio or occupation-based loans, including programs for medical professionals. Rates, fees, and qualification standards vary, so compare the annual percentage rate, monthly cost, lender fees, and cash needed to close. Rocket Mortgage has no-PMI Jumbo Smart loans.⁵

Buy a lower-priced home

Reducing the purchase price lowers the dollar amount needed for a 20% down payment. For example, 20% of a $500,000 home is $100,000, while 20% of a $350,000 home is $70,000.

Look for a price that supports your housing needs while leaving room for closing costs, repairs, maintenance, taxes, insurance, and savings. A different location, home size, or feature list may make a larger percentage down payment more achievable.

Is paying PMI ever worth it?

Paying PMI can make sense when it helps you buy with a smaller down payment and the full loan fits comfortably within your home buying budget. The alternative may be waiting to save 20% while your rent, personal plans, and local home prices continue to change.

There isn’t one calculation that works for every home buyer. Compare the cost of PMI with the value you place on buying sooner, preserving savings, and keeping flexibility after closing.

Pros of paying PMI temporarily

PMI can provide access to a conventional mortgage without waiting until you have 20% of the purchase price. That may help you:

• Buy sooner
• Keep more cash available after closing
• Avoid taking out a second mortgage
• Begin paying down a mortgage and building equity
• Request cancellation later if your loan and payment history qualify

Compare monthly PMI, higher-rate no-PMI loans, other loan programs, and a larger down payment over time frames that are realistic for you.

Cons of paying PMI

PMI raises the cost of the mortgage while it remains in place and protects the lender rather than the homeowner. A smaller down payment also means borrowing more, which may increase the principal-and-interest portion of your payment.

PMI may be less appealing when you already have the funds for 20% down, can make that payment without draining needed savings, and don’t receive enough benefit from keeping the cash elsewhere.

Can you remove PMI later?

You may be able to remove borrower-paid PMI as you repay the mortgage and build equity. Federal law establishes cancellation and termination rights for many conventional mortgages secured by a primary residence. Exceptions for PMI removal exist for high-risk loans, lender-paid PMI, government-backed loans, and transactions outside the law’s scope.

Monitor your LTV ratio

Your loan-to-value ratio compares the mortgage balance with the home value used for the calculation:

Mortgage balance ÷ home value × 100 = LTV

A $240,000 balance compared with a $300,000 value produces an 80% LTV. The relevant value can differ depending on whether you’re requesting cancellation under federal original-value rules or an investor’s current-value policy.

An 80% LTV is often the threshold, but it may vary based on how you get there and the policies associated with your loan.

Your servicer manages the loan and collects your payments. Review your mortgage statement, amortization schedule, and original PMI disclosure, then contact the servicer to confirm the cancellation standards that apply.

Pay extra toward your mortgage

Extra principal payments reduce the loan balance faster. Once the actual balance reaches 80% of the home’s original value, you may be able to submit a written cancellation request rather than waiting for the date shown on the original amortization schedule.

Extra payments don’t usually move the federal automatic-termination date forward because that date is based on when the balance was originally scheduled to reach 78%. They can help you qualify for borrower-requested cancellation sooner.

Request PMI cancellation at 80% LTV

For many covered loans, you can request cancellation when the principal balance is scheduled to reach, or actually reaches, 80% of the home’s original value. Original value generally means the lower of the purchase price or appraised value at the time of purchase. For a refinance, it generally means the appraised value at closing.

You’ll need to make the request in writing. You must also be current and have a good payment history. The mortgage holder may require evidence that the property’s value hasn’t fallen below its original value and certification that your equity isn’t subject to a subordinate lien, another legal claim against the home.

A good payment history generally means no payment was 60 days or more past due during the preceding 24 months and no payment was 30 days or more past due during the preceding 12 months.

Wait for automatic PMI removal at 78% LTV

For many covered loans, the servicer must automatically terminate PMI when the principal balance is first scheduled to reach 78% of the home’s original value, provided the mortgage payments are current.

This date comes from the applicable amortization schedule. It doesn’t move earlier simply because you make extra payments or the home appreciates. When you pay the balance down faster, requesting cancellation at 80% may remove PMI sooner than waiting for automatic termination.

If you aren’t current on the scheduled termination date, termination generally occurs after you bring the payments current.

Remove PMI with home appreciation

Some mortgage investors and servicers allow PMI cancellation based on the home’s current value rather than its original value. This isn’t the same as the federal right to request cancellation when the balance reaches 80% of original value.

For a one-unit primary residence or second home, Fannie Mae and Freddie Mac generally use these current-value thresholds:

• An LTV of 75% or less when the loan has been open for 2 – 5 years
• An LTV of 80% or less after the applicable 5-year seasoning threshold
• An LTV of 80% or less when qualifying property improvements allow the usual 2-year waiting period to be waived

Both investors also generally require the mortgage to be current, with no payment 30 or more days past due during the preceding 12 months and no payment 60 or more days past due during the preceding 24 months. A new property valuation is generally required.

Other investors and mortgage insurers may have different policies, so start by contacting your servicer.

Refinance your mortgage

Refinancing replaces your existing mortgage with a new one. If the new conventional loan is at or below 80% LTV, it may not require PMI. This could happen after you’ve repaid enough principal, the home has appreciated, or both.

A refinance also comes with a new interest rate, loan terms, qualification review, and closing costs. Compare the cost of the new loan with the potential benefit of removing PMI and changing your monthly payment.⁶ Refinancing to remove PMI may offer limited value when the closing costs are high or the new interest rate is elevated.

PMI FAQ

Here are answers to common questions about avoiding, estimating, and removing PMI.

How can I avoid monthly PMI without 20% down?

Options may include lender-paid PMI, single-pay PMI, a piggyback mortgage, an eligible VA or USDA loan, gift funds, down payment assistance, or a lender-specific no-PMI program.

Several of these choices still include an upfront insurance cost, higher interest rate, second loan, or government fee. Compare Loan Estimates using the same purchase price and expected down payment.

Does PMI go away at 20%?

PMI doesn’t necessarily disappear the moment your equity reaches 20%. For many covered loans, reaching 80% LTV based on original value gives you the right to request cancellation after meeting the payment-history, written-request, valuation, and lien requirements.

Automatic termination generally occurs when the balance is scheduled to reach 78% of original value, equivalent to 22% equity, provided you’re current.

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

Using a 10% down payment, the estimated loan amount would be $270,000. At an annual PMI rate of 0.1% – 2%, the broad estimate is $270 – $5,400 per year, or $22.50 – $450 per month.

The actual amount depends on the loan, down payment, credit profile, mortgage type, and insurer. These figures don’t include the other parts of a mortgage payment.

How much is PMI on a $400,000 house?

Using a 10% down payment, the estimated loan amount would be $360,000. At an annual PMI rate of 0.1% – 2%, the broad estimate is $360 – $7,200 per year, or $30 – $600 per month.

A quote based on your complete application will give you a more useful number than the home price alone.

Do FHA loans have PMI?

FHA loans don’t use conventional PMI. They require MIP, which has separate upfront, annual, and cancellation rules.

For FHA loans after mid-2013, MIP lasts for 11 years if you go into it with 10% or more equity. Otherwise, it remains for the life of the loan.

Learn more about FHA mortgage insurance removal and the FHA mortgage insurance premium.

How long do I have to pay PMI?

The answer depends on the type of PMI, your balance, payment history, loan terms, and whether you request cancellation.

For many borrower-paid PMI arrangements, you may request cancellation at 80% of original value and receive automatic termination at the scheduled 78% date if you’re current. If neither occurs, final termination generally applies by the first day of the month after the midpoint of the loan’s amortization period, provided you’re current. For a standard 30-year loan, the midpoint comes after 15 years.

Lender-paid PMI, high-risk loans, FHA loans, and other mortgage structures follow different rules.

The bottom line: You can avoid PMI or remove it early

A 20% down payment is the clearest way to avoid PMI, but it’s only one path. Lender-paid PMI, single-pay PMI, piggyback financing, government-backed loans, gift funds, assistance programs, and lender-specific options can change how much you pay upfront and each month.

When PMI helps you buy sooner without stretching your budget or emptying your reserves, paying it temporarily may be reasonable. When you already have enough equity, monitor your LTV and ask your servicer about cancellation rather than assuming the charge will end immediately.

Ready to compare mortgage options? Apply online with Rocket Mortgage.

¹Rocket Mortgage is not acting on behalf of FHA or HUD.

²Any figures, interest rates, loan examples, and market data referenced in this article are hypothetical or aggregated for educational purposes only. They are not intended to reflect current pricing, available terms, or personalized loan options for any consumer. This content does not constitute an advertisement of credit terms, a solicitation or offer to extend credit, or a rate quote under federal or state lending laws. Actual mortgage rates and terms are determined by individual financial qualifications, property characteristics, market conditions, and other factors, and are subject to change without notice.

If you are seeking current, real-time mortgage rate information please refer to the official live rate information and product details published at RocketMortgage.com/mortgage-rates, where current pricing and various loan terms are made available.

³Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

⁴Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁵Rate pricing and closing costs dependent on loan qualification requirements and factors including but not limited to credit, income, assets, down payment, product selection and loan amount. This is not a commitment to lend.

⁶Refinancing may increase finance charges over the life of the loan.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.