How to avoid PMI without 20% down

9 ways to get a mortgage without PMI

Some home buyers want to avoid it at all costs.

While it allows you to buy a house with less than 20% down, private mortgage insurance (PMI) is an additional fee you have to pay each month.

Fortunately, it’s possible to put less than 20% down without adding PMI premiums to your monthly mortgage payment. Here’s how.

In this article (Skip to…)

• Ways to avoid PMI
• How much is PMI?
• PMI vs. FHA MIP
• Getting rid of PMI
• FAQ

>Related: How to buy a house with $0 down: First-time home buyer

How to avoid PMI when buying a house

Private mortgage insurance protects the lender in the event of a loan default. This is the reason why lenders require PMI when a buyer cannot put down at least 20% of the home’s price.

The good news is that even if you don’t have 20% down, there are numerous options available to you to help you avoid having to pay for PMI.

1. Get the lender to pay for your mortgage insurance

Lender-Paid Mortgage Insurance (LPMI) is exactly what it sounds like: The mortgage lender covers your mortgage insurance so you don’t have to pay out of pocket. This is one way to avoid PMI.

Of course, there’s a catch.

If the lender pays your mortgage insurance, you’ll pay a higher interest rate in return. In reality, you’re still paying for PMI, but it’s in the form of an interest payment instead of monthly premiums.

You can get a lender-paid mortgage insurance loan with as little as 3% down. However, the rate will be fairly high on that loan, especially if you don’t have an awesome credit score.

Following is an example showing the monthly cost of LPMI versus traditional PMI with a 720 credit score.

*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. 

In this case, the LPMI does save you a bit of money each month.

However, you can never cancel LPMI, even if you pay your mortgage down below 80% of your home value. Traditional PMI goes away when your loan balance hits 78% of the home’s value. But your LPMI rate will not drop at that point.

Instead, you’d keep paying the higher LPMI rate for the life of the loan (or until you refinance).

Consider how long you will be in the home, whether you will eventually keep it as a rental, or other long-term plans before accepting LPMI.

2. Use a piggyback loan with 10% down and no PMI

Another way to avoid PMI is by using a piggyback mortgage.

This is a unique loan structure where the buyer needs only 10% down in cash.

The buyer then takes out a second mortgage loan, which provides another 10% of the home’s purchase price. So they effectively have a 20% down payment and do not have to pay mortgage insurance.

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

This structure is often called an “80/10/10.”

For buyers of condominiums, 75/15/10 piggyback loans are more common, mainly because mortgage rates are higher for condos with less than 25% down.

The second mortgage is often from the same bank or lender as the first mortgage.

But you might have to find your own second mortgage if your lender does not offer one. A credit union or local bank is a great source for this type of loan.

Just make sure the second lender knows you are purchasing a home and that you need the financing completed on a specific day. Let them know your closing date and make sure they can accommodate a quick closing if necessary.

Piggyback loans are a little-known type of mortgage that can be a great way to avoid PMI on conventional mortgage with less than 20% down.

3. Find a no-PMI mortgage program

From time to time, lenders and banks create their own programs that allow a low down payment with no PMI. These may even have additional perks for first-time home buyers, lower-income home buyers, or certain professionals (like teachers and doctors).

Here are just a few examples of no-PMI mortgage programs:

• 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)

The tradeoff here is that no-PMI loans usually have higher rates. And they often require a higher credit score to qualify.

Keep in mind that lenders can change proprietary mortgage programs at any time.

These programs are current at the time of writing, but double-check with the lender to see what’s available before applying.

4. Look into state or local homebuyer assistance programs

Numerous state and local governments, as well as a few nonprofit organizations, provide programs to aid first-time homebuyers in being able to afford homes. These initiatives can come in a variety of forms, such as grants, tax credits, subsidized loans, and help with the down payment.

Some of these programs might be sufficient to assist a buyer in meeting the 20% down payment requirement to get rid of PMI.

There are between 2,000 and 2,500 assistance programs in the United States. Therefore, there is probably one in your area that could assist you in becoming a homeowner sooner than you anticipated. See our guide to homebuyer assistance in every state.

5. 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.

6. Look at split-premium PMI

With split-premium PMI, you first pay a larger upfront fee to cover a portion of the costs, which reduces your monthly payment obligations later on.

This combines the advantages and disadvantages of borrower-paid and single-premium PMI. The amount of money required to pay the upfront premium is modest. As a result, your monthly expenses will be lower.

If your debt-to-income ratio (DTI) is on the higher end, split-premium mortgage insurance may also be beneficial. It enables you to reduce your potential mortgage payment to prevent raising your DTI above the threshold required for loan eligibility.

7. Gifts funds from family

Using gift money for a down payment is a common strategy that many homebuyers use to reach the 20% threshold and avoid paying PMI. 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%.

8. Purchase a less expensive home

You might find it easier to put down 20% if you buy a home that is less expensive. The down payment required to meet the 20% requirement must be smaller the smaller the mortgage.

For those who are willing to live in a smaller home or a less expensive area, or for first-time homebuyers, this strategy can be especially effective.

9. Check your eligibility for a VA loan

For eligible veterans, active duty service members, and other armed forces personnel, a VA loan is usually the best way to avoid PMI.

This type of loan is available with 0% down and do not require any monthly mortgage insurance payments. There’s only a one-time Funding Fee borrowers must pay upfront to use a VA loan.

Depending on your down payment and whether you’ve used a VA loan before, the Funding Fee is between 1.4% and 3.6% of the loan amount. But the total cost will likely be cheaper than what others pay for monthly mortgage insurance.

The lack of PMI, coupled with exceptionally low rates, is what makes a VA loan such a great deal for qualified veterans.

How much does PMI cost?

In general, PMI costs range from 0.30% to 1.15% of your loan balance annually. This amount will be broken into 12 installments and paid along with your monthly mortgage payment.

Your loan term, loan-to-value ratio (which is based on your down payment), and credit score all play a role in determining your PMI rate.

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

Because PMI is calculated based on your loan amount, your total PMI cost will go down each year as you pay off your loan balance.

How PMI is calculated

Like all insurance policies, the cost of PMI is risk-based. Making a smaller down payment or getting an adjustable-rate mortgage, for example, puts your lender at greater risk, so you should expect your PMI costs to run higher.

When you can make a 20% down payment (80% loan-to-value ratio), you lower the lender’s risk to the point that you won’t need to pay PMI at all.

However, PMI premiums change regularly. From state to state and lender to lender, PMI costs will vary.

And while PMI may be your only option when purchasing a new home, not buying a home may be an even less fruitful investment when you consider that historically, real estate has grown in value.

Conventional PMI versus FHA MIP

It is important to note the difference between PMI (private mortgage insurance) and MIP (mortgage insurance premium).

• PMI (private mortgage insurance) is applied to conventional loans. 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). It cannot be canceled, and it will not be removed automatically unless the homeowner bought with more than 10% down and paid MIP for a full 11 years

Because of the FHA’s mortgage insurance rules, many borrowers prefer conventional PMI. It will eventually fall off on its own, 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.

How do I get rid of PMI once I’ve purchased a home?

In general, PMI can be canceled once your loan’s principal balance drops to 80% of your home’s original appraised value or 80% of your home’s current market value.

If you are a homeowner who already has PMI, that’s okay. You’re making an excellent return on your mortgage insurance investment.

Still, you may want to get rid of your PMI, and that’s totally possible. Using a refinance, you can eliminate any type of mortgage insurance as long as your new loan amount is 80% or less of your home’s current value.

There are restrictions that sometimes apply, however. Depending on your lender and provider of PMI, you may be asked to show:

• A history of timely payments
• A minimum number of payments must be made (usually 12)
• Or, the absence of a second mortgage

Lenders are required to update you annually on your PMI cancellation options.

This includes notice of the Homeowners Protection Act of 1998, which required lenders to automatically terminate PMI once the homeowner reaches 78% loan-to-value (LTV), based on the lesser of the purchase price or appraised value from the date of purchase or refinance.

Note, though, that you must be current on your loan when you reach 78% LTV in order to have your PMI removed. If you’re not current at that time, your PMI will be terminated instead on the first day of the first month following the date you get current.

The Homeowners Protection Act of 1998 also states that homeowners are permitted to request PMI cancellation once they reach 80% LTV, based on the home’s original value.

However, the lender will not contact you when you are eligible for PMI cancellation. You will have to contact your lender.

Mortgage insurance FAQ

Check your no-PMI loan options

There are plenty of ways for a creative home buyer to get around mortgage insurance. If you want to avoid PMI but don’t have 20% down, talk to a few lenders about your options. Chances are, you can get away without PMI and still have a reasonable payment.