What Is PMI and How Can You Avoid It?

Private Mortgage Insurance (PMI) is insurance that protects the lender (not you) if you default on your loan. It's required on conventional loans when your down payment is less than 20% of the home's purchase price.

PMI typically costs 0.5–1.5% of your loan amount per year, paid monthly. On a $400,000 loan, that's $167–$500/month added to your payment.

There are several strategies to avoid PMI:

• Put 20% down: The simplest solution, though not always feasible.
• Piggyback loan (80-10-10): Take a first mortgage for 80%, a second mortgage for 10%, and put 10% down. No PMI required.
• VA loan: No PMI ever, regardless of down payment.
• Lender-paid PMI: The lender pays PMI in exchange for a slightly higher interest rate. Makes sense if you plan to sell or refinance within a few years.

If you're stuck with PMI, here's when you can get rid of it:

• Automatic cancellation: By law, PMI must be cancelled when your loan balance reaches 78% of the original purchase price (based on your payment schedule).
• Request cancellation: You can request removal when you reach 80% LTV — either through payments or home appreciation. You may need a new appraisal.
• Refinance: If your home has appreciated significantly, refinancing with 20%+ equity eliminates PMI.