PMI: What It Is, How to Avoid It, and How to Remove It
If you put less than 20% down on a conventional loan, you will pay private mortgage insurance. It protects the lender, not you — but you pay for it. Here is how it works and how to get rid of it.
What PMI Costs
PMI typically costs 0.5% to 1.5% of your loan amount per year, paid monthly. On a $280,000 loan, that is $117-$350 per month. The exact rate depends on your credit score, down payment percentage, and loan type. Better credit and a larger down payment mean lower PMI rates.
How to Avoid PMI
Put 20% down — the most straightforward path but not realistic for everyone. Some lenders offer "lender-paid PMI" where they pay the insurance in exchange for a slightly higher interest rate. VA loans have no PMI regardless of down payment. Some credit unions and community banks offer no-PMI programs for qualified buyers.
How to Remove PMI
For conventional loans, you can request PMI removal once you reach 20% equity (meaning you owe 80% or less of the home's current value). Your lender must automatically cancel PMI when you reach 22% equity. You can reach 20% through regular payments, extra payments toward principal, or home value appreciation. If your home has increased in value, you can request a new appraisal to prove you have 20% equity — though you will pay for the appraisal.
Key Takeaways
- ✓PMI costs 0.5-1.5% of your loan amount annually and is required below 20% down
- ✓Better credit scores mean lower PMI rates
- ✓You can request PMI removal at 20% equity — it is automatically cancelled at 22%
- ✓If your home increases in value, that can help you reach 20% equity faster — but appreciation is not guaranteed
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