Private Mortgage Insurance (PMI) is a type of insurance required on most conventional loans when your down payment is less than 20%. PMI protects the lender—not the borrower—in case of default. While PMI adds to your monthly payment, it also allows you to buy a home sooner without waiting to save a full 20% down payment.
This guide explains how PMI works, how much it costs, and how you can remove it.
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PMI is insurance that reduces the lender’s risk when financing a home with a low down payment. It is not homeowner’s insurance and does not protect the borrower. Instead, PMI makes it possible for buyers to qualify for a conventional loan with as little as 3%–5% down.
PMI is added to your monthly mortgage payment until you reach enough equity in your home. It allows lenders to approve loans with lower down payments by providing financial protection if the borrower stops making payments.
Once your loan reaches the required equity threshold, PMI can be removed.
Yes. PMI allows borrowers to:
For many buyers, PMI is a temporary cost that opens the door to homeownership.
PMI typically costs 0.3% to 1.5% of the loan amount per year, depending on:
For example, on a $400,000 loan, PMI might range from $100 to $300 per month.
PMI can be paid in several ways:
Added to your monthly mortgage payment.
Paid at closing as a one‑time fee.
A combination of upfront and monthly payments.
Your lender will help you choose the most cost‑effective option.
You don’t apply for PMI separately. Your lender arranges PMI automatically when your down payment is below 20% on a conventional loan.
Yes — and this is one of the biggest advantages of conventional loans.
Unlike FHA mortgage insurance, PMI does not last for the life of the loan.
| Feature | PMI (Conventional) | MIP (FHA) |
|---|---|---|
| Required When | Down < 20% | All FHA loans |
| Can Be Removed? | Yes | Sometimes, but often lasts for life of loan |
| Based On | Credit score + down payment | Loan amount + term |
| Monthly Cost | Varies | Standardized |
PMI was introduced to help lenders reduce risk and make homeownership more accessible. By allowing smaller down payments, PMI has helped millions of buyers purchase homes sooner.
Under the FCRA, borrowers have the right to:
Your credit score plays a major role in determining your PMI rate.
No. PMI protects the lender, not the borrower.
Until you reach 20% equity or request removal.
Yes — if your new loan meets the equity requirements.
Sometimes. Tax laws change, so consult a tax professional.
No. FHA loans use MIP, which works differently.
