Conventional Loan Insurance: PMI Explained and How to Remove It
Private Mortgage Insurance: The Complete Guide
If you're buying a home with a conventional loan and putting down less than 20%, you'll need Private Mortgage Insurance (PMI). While it adds to your monthly cost, understanding how it works — and how to eliminate it — can save you thousands.
What Is PMI?
PMI protects your lender (not you) if you default on your mortgage. It's required because loans with less than 20% down are considered higher risk. Despite protecting the lender, you pay the premium.
How Much Does PMI Cost?
PMI typically costs 0.5%–1.5% of the loan amount per year, depending on:
- Your credit score (higher score = lower PMI)
- Your down payment percentage
- The loan amount
- The type of loan
Example: On a $250,000 loan with a 5% down payment and good credit, PMI might cost $125–$250/month.
How to Remove PMI
Unlike FHA MIP, conventional PMI can be removed. Here's how:
- Automatic removal at 78% LTV — Your servicer must remove PMI when your loan balance reaches 78% of the original value, based on the amortization schedule.
- Request removal at 80% LTV — You can request PMI removal when you reach 80% LTV. You'll need to be current on payments and may need a new appraisal.
- Accelerated removal through extra payments — Making extra principal payments gets you to 80% faster.
- Home value increase — If your home appreciates significantly, you may reach 80% LTV sooner. You'll need a new appraisal to prove it.
- Refinance — If your home value has increased enough, refinancing can eliminate PMI entirely.
PMI vs. Other Options
- Lender-paid PMI (LPMI) — The lender pays PMI in exchange for a slightly higher interest rate. Can be cost-effective but can't be removed.
- Piggyback loan (80-10-10) — Use a second mortgage for 10% to avoid PMI. The second mortgage has a higher rate but may cost less overall.
- VA loan — No PMI at all, regardless of down payment. Available to eligible veterans.
The Bottom Line on PMI
PMI isn't ideal, but it's not the enemy. It allows you to buy a home with a smaller down payment, building equity and benefiting from appreciation while you work toward 80% LTV. The key is having a plan to remove it.
Plan Your Path to PMI-Free
Read our conventional loan guide or talk to our team about structuring your insurance to minimize total costs while you work toward eliminating PMI.