About Private Mortgage Insurance

Understanding Private Mortgage Insurance (PMI)

If you're buying a home with less than a 20% down payment, chances are you'll encounter Private Mortgage Insurance (PMI). While it adds to your monthly costs, PMI can help you qualify for a mortgage sooner and start building equity faster.

About Private Mortgage Insurance

If you are in the market to buy a new home and have less than a 20% down payment, you are usually required to buy PMI.

Overview of PMI

PMI is required for conventional loans when your down payment is under 20%. It protects the lender if you cannot make your mortgage payments.

PMI is provided by private insurers and arranged by your lender.

It typically costs between 0.5% and 1% of your loan annually. For example, on a $150,000 loan, that could be about $125 per month.

Avoiding PMI

Some lenders offer loans without PMI but with higher interest rates. Depending on your situation, this may be more or less expensive.

Another option is an FHA loan, which may have different cost structures.

The most straightforward way to avoid PMI is to put 20% down.

Getting Rid of PMI

When your loan balance drops to 80% of your home's value, you can request PMI removal.

At 78%, it may be removed automatically if you are current on payments. Learn more about how to get the PMI removed .

Ways to remove PMI sooner:

Refinance: If your equity reaches 20%
New appraisal: Reflect increased home value
Extra payments: Reduce principal faster
Remodel: Increase home value

Refinancing during favorable rate conditions may eliminate PMI and lower payments.

What's Next?

PMI may increase monthly costs, but it can also help you achieve homeownership sooner. Understanding how it works helps you plan effectively.

Salem Five can guide you through every step of the mortgage process with clarity and confidence.

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FAQs: About PMI

What is Private Mortgage Insurance (PMI)?
PMI is a type of insurance that protects the lender—not the borrower—if you default on your mortgage. It’s typically required for conventional loans when your down payment is less than 20%.
How much does PMI cost?
PMI usually costs between 0.5% and 1% of your total loan amount annually. For example, on a $250,000 loan, you could pay $1,250 to $2,500 per year—or roughly $100 to $210 per month. Your exact rate depends on your credit score, loan type, and down payment size.
Can I avoid PMI?
Yes. Here are a few options:
- Make a 20% down payment
- Consider a FHA loan or other government-backed programs
- Explore lender-paid PMI options (though these may come with higher interest rates)
Saving for a larger down payment is often the most cost-effective way to avoid PMI.
How do I remove PMI once I have it?
You can request PMI cancellation once your loan balance reaches 80% of your home’s original value. Lenders are required to remove it automatically at 78%, assuming you're current on payments. You can also:
- Refinance if your home has appreciated
- Request a new appraisal to prove 20% equity
- Make extra principal payments to reach the threshold faster
Is PMI tax-deductible?

PMI was tax-deductible for some homeowners in recent years, but the deduction has expired and may not be available going forward. Check with a tax advisor to see if you qualify under current IRS rules.