Key Takeaways
- Private mortgage insurance (PMI) applies to most conventional loans with less than 20% down.
- PMI usually costs between 0.30% and 1.15% of the loan amount per year.
- You can avoid PMI without 20% down through options like piggyback loans, lender-paid PMI, VA loans, or special lender programs.
- You can request PMI removal at 80% loan-to-value or wait for automatic cancellation at 78%.
Many home buyers want to understand how to avoid private mortgage insurance because it adds a recurring cost to their monthly mortgage payments. While PMI allows borrowers to buy a home with less than 20% down, it can increase the total cost of the loan over time. Fortunately, there are ways to make a down payment of less than 20% without paying monthly PMI premiums. Here’s how.
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>Related: How to buy a house with $0 down: First-time home buyer
What is PMI?
PMI stands for private mortgage insurance, a type of insurance that protects the lender if a borrower stops making mortgage payments. Lenders usually require PMI when a borrower puts down less than 20% on a conventional home loan. Borrowers pay PMI alongside their monthly mortgage payment until they build 20% equity in the home. Once the loan reaches that threshold, the lender cancels PMI.
How to avoid PMI
Learning how to avoid PMI begins with understanding why lenders require private mortgage insurance in the first place. PMI protects the lender when a borrower makes a down payment of less than 20% of the home’s purchase price, which increases the lender’s risk. The good news is that even without a 20% down payment, there are many options available to help you avoid paying PMI.
Check your options for home loans with no pmi. Start here1. Get the lender to pay for your mortgage insurance
Lender-paid mortgage insurance (LPMI) means the lender covers the cost of mortgage insurance instead of charging a monthly PMI premium. In return, the lender raises the interest rate, which shifts the cost into interest payments over time. This option can lower the monthly payment, but borrowers cannot cancel LPMI, even after reaching 20% equity.
The following example shows the monthly cost of LPMI versus traditional PMI for a 720 credit score.
| Down Payment | Rate with PMI* | Mortgage Payment With Regular PMI | Rate with LPMI* | Mortgage Payment With LPMI |
| 3% Down | 6.25% | $2,008 | 6.875% | $1,845 |
| 5% Down | 6.25% | $1,849 | 6.75% | $1,792 |
| 10% Down | 6.25% | $1,735 | 6.75% | $1,711 |
*Rates shown are for sample purposes only. Your own rate will be different. Payments assume a $250,000 home price in WA with a 30-year fixed-rate mortgage.
2. Use a piggyback loan with 10% down and no PMI
To understand how to avoid PMI, consider a piggyback mortgage (also called an 80-10-10 loan). A piggyback loan uses two loans to finance a home. The buyer takes out an 80% first mortgage, a 10% second mortgage, and provides a 10% down payment themselves. This strategy gives you the 20% down payment you need to avoid PMI on a conventional mortgage.
The most common piggyback loan arrangement looks like this:
- An 80% first mortgage
- A 10% second mortgage (usually a home equity line of credit)
- A 10% down payment
The second mortgage is often from the same bank or lender as the first mortgage.
3. Consider home loans without pmi
Some lenders offer exclusive mortgage programs that require low down payments without PMI. These programs often target first-time buyers, lower-income households, or specific professions (like teachers and doctors), and they typically require higher credit scores or charge higher interest rates. Availability can vary at any moment, so borrowers should verify current options directly with the lender.
Researching these specialized programs is essential for understanding how to avoid PMI for those without a substantial down payment saved. Here are a few examples of low down payment mortgages with no PMI:
- Neighborhood Assistance Corporation of America (NACA): This organization focuses on providing homeownership opportunities to low- to moderate-income individuals or those buying in underserved communities. NACA touts no down payment, no closing costs, no points, below-market rates, and best of all, no PMI. Keep in mind that this loan is only for those who fit their criteria, and it’s unclear how many qualify for the loan
- Bank of America: At the time of this writing, Bank of America offers the Affordable Loan Solution mortgage. It requires just 3% down and does not require PMI. Pre-homeownership counseling is required through B of A’s network of counselors, and maximum income limits apply
- CitiMortgage: This nationwide lender offers the HomeRun Mortgage, which offers loans up to $ (higher in high-cost areas) with 3% down and no PMI. Homeownership education is required, but these courses typically require a small time commitment
- Movement Mortgage: This all-digital lender offers the “Dream to Own" mortgage, a conventional loan program with no mortgage insurance required. It also allows down payment and closing cost assistance up to 4% of the home price. A minimum credit score of 660 is required to qualify
- Caliber Home Loans: If you’re buying a high-priced home, Caliber’s “Elite Access" program offers jumbo loans with just 5% down and no mortgage insurance. Currently, a jumbo loan is anything over $ in most areas. Borrowers need at least a 740 FICO score to qualify and nine months’ worth of mortgage payments in cash reserves (savings)
4. Look into state or local homebuyer assistance programs
State and local homebuyer assistance programs can help borrowers avoid PMI by increasing their effective down payment. These programs may offer grants, tax credits, or subsidized loans that reduce the amount a buyer needs to finance. With thousands of programs available nationwide, assistance can help reach the 20% threshold. See our guide to homebuyer assistance in every state.
5. Gifts funds from family
If you’re wondering how to avoid PMI insurance, a common strategy is to use gift money to reach the 20% threshold. Lenders will usually allow gift money to be used for a down payment, but there are some stipulations. The gift money must truly be a gift, not a loan in disguise. This usually means that the person giving the gift must provide a “gift letter” to the lender, affirming that the money is a gift and not expected to be repaid.
The source of the gift can also matter. Gifts from immediate family members are usually acceptable, while gifts from more distant relatives, friends, or employers may not be. Some lenders also have limits on how much gift money can be used as a percentage of the down payment, especially if you’re putting down less than 20%.
6. Purchase a less expensive home
Buying a lower-priced home reduces the cash required to reach a 20% down payment. A smaller purchase price lowers both the down payment amount and the loan balance needed to avoid PMI. This strategy works best for buyers who have flexibility on location or home size.
7. Check your eligibility for a VA loan
VA loans enable eligible veterans and service members to buy a home with no down payment and no PMI. The Department of Veterans Affairs guarantees these loans, which often results in lower interest rates and more flexible terms compared to conventional loans. Borrowers pay a one-time VA Funding Fee instead of monthly mortgage insurance.
Check your VA loan eligibility. Start here8. Buy real estate that will appreciate sharply
One effective method on how to avoid PMI involves purchasing property that is likely to appreciate in value. Once your home’s value increases sufficiently to lower your loan-to-value ratio (LTV) below 80%, some banks may permit you to request PMI cancellation. Typically, banks will require a professional appraisal to support this request.
9. Consider single-premium PMI
While this method doesn’t technically eliminate mortgage insurance premiums, you will avoid the recurring payments. Rather than paying PMI in monthly installments, you pay the entire PMI premium at closing. This option is beneficial if you can afford it and anticipate that it will take a long time to cancel PMI. However, if you sell or refinance early, you might not recoup the cost.
Check your no-PMI loan options. Start here10. Look at split-premium PMI
Split-premium PMI combines an upfront payment with reduced monthly premiums. This structure lowers the monthly mortgage payment without requiring a large lump sum. Borrowers with higher debt-to-income ratios sometimes use this option to qualify more easily.
How much does PMI cost?
PMI typically costs between 0.30% and 1.15% of the loan balance per year, and lenders divide that amount into 12 payments that borrowers pay with their monthly mortgage. The exact cost depends on factors such as loan term, loan-to-value ratio, and credit score. As borrowers pay down the loan balance, the total PMI cost decreases over time.
Here’s an example:
- Home price: $250,000
- Credit score: 740
- Down payment: 5% ($12,500)
- Loan: $237,500 30-year fixed-rate mortgage
- Annual PMI: $1,236
- Monthly PMI cost: $103
How is PMI calculated?
Lenders calculate Private Mortgage Insurance (PMI) by applying an annual PMI rate to the total loan amount and dividing the result into monthly payments. PMI rates typically range from 0.5% to 1.5% and depend on the borrower’s credit score, down payment size, and loan-to-value (LTV) ratio. Smaller down payments and lower credit scores increase lender risk and result in higher PMI rates.
The basic PMI formula:
- Monthly PMI payment: Annual PMI cost ÷ 12
- Annual PMI cost: Loan amount × PMI rate
Conventional PMI vs FHA MIP
Researching different mortgage options is essential for understanding how to avoid PMI on your home loan. When comparing your options, it’s important to know the difference between PMI (private mortgage insurance) and MIP (mortgage insurance premium).
- PMI (private mortgage insurance) is applied to conventional mortgages. It can be canceled at 80% loan-to-value ratio (LTV) or removed automatically at 78% LTV
- MIP (mortgage insurance premium) is applied to loans insured by the Federal Housing Administration (FHA loans). MIP cannot be canceled; borrowers pay MIP for the life of the loan. However, in some cases, MIP can be removed when the homeowner put more than 10% down and has paid MIP for a full 11 years
Due to the FHA’s mortgage insurance rules, many borrowers opt for conventional PMI. It will eventually cancel itself, whereas most borrowers with FHA MIP are stuck paying it until they refinance or pay off their loan. The same is true for USDA loans, which require their own type of mortgage insurance called a guarantee fee. You can read more about how to remove MIP here.
Check your loan eligibility. Start here
How do I get rid of PMI once I’ve purchased a home?
To get rid of PMI on a conventional loan, you need to build at least 20% equity through loan payments or home appreciation, then request cancellation from your lender or wait for automatic removal. According to the Homeowners Protection Act of 1998, you can remove PMI by:
- Requesting PMI cancellation after reaching 80% loan-to-value by contacting the lender in writing.
- Waiting for automatic PMI cancellation at 78% loan-to-value under federal law.
- Reaching the midpoint of the loan term, at which point the lender must cancel PMI even if the 78% threshold is not met.
- Remove PMI early by making extra principal payments, requesting a new appraisal after home appreciation, or refinancing into a conventional loan with sufficient equity.
FAQ: How to avoid PMI
Check your options for home loans with no pmi. Start hereUnderstanding how to avoid PMI without a 20% down payment is possible. One approach is lender-paid PMI, which typically results in a higher mortgage rate over the loan’s life. Another popular option is the piggyback loan, where a second mortgage helps finance part of the down payment needed to avoid PMI. Additionally, veterans have the advantage of avoiding PMI without any down payment through the VA loan program.
Homeowners insurance protects your home and belongings from damage or theft, covering repairs or replacements if necessary. It also provides liability coverage in case someone is injured on your property. Mortgage insurance, on the other hand, protects the lender if you default on your loan. It’s typically required if your down payment is less than 20% of the home’s purchase price, ensuring the lender can recover costs in case of foreclosure.
Many lenders might waive PMI payments in return for a higher mortgage interest rate. However, this can end up being more costly than PMI over a longer period. To understand how to avoid PMI without increasing your mortgage rate, consider either making a 20% down payment or utilizing a piggyback loan.
Yes, PMI is removed once your loan balance drops to 78% of your home’s original value. You can also proactively request to cancel PMI payments when you reach an 80% loan-to-value ratio.
Jumbo loans, which exceed Fannie Mae and Freddie Mac loan limits, don’t always require PMI. Since they fall outside standard guidelines, lenders have more flexibility with these loans. However, to avoid PMI or similar requirements, lenders might require a 20% or larger down payment or evidence of significant financial reserves.
FHA loans do not have PMI; instead, they come with Mortgage Insurance Premium (MIP). Since MIP is required on all FHA loans regardless of down payment size, the traditional method of avoiding PMI by making a 20% down payment does not apply. The only way to eliminate MIP costs is by refinancing into a conventional loan without PMI when you have built enough equity in your home.
