PMI Explained: What It Costs and How to Get Rid of It
Daniel ParkNo. 61
Updated
Key takeaways
- PMI is usually required on conventional loans with less than 20% down.
- It protects the lender, but it’s what lets you buy sooner with a smaller down payment.
- You can ask to remove PMI at 80% of your home’s original value, and it ends automatically at 78% under federal law if you’re current.
- FHA mortgage insurance works differently and often lasts longer.
Many buyers think they need 20% down to buy a home. They don’t. Private mortgage insurance, or PMI, is what makes smaller down payments possible. Here’s how it works.
What PMI costs
PMI is usually added to your monthly payment. The cost depends on your credit score, down payment and loan amount. Buyers with higher scores and larger down payments pay less.
PMI vs. FHA mortgage insurance
| Conventional PMI | FHA mortgage insurance | |
|---|---|---|
| Upfront charge | Usually none | An upfront premium, often financed |
| Monthly charge | Yes, based on credit and down payment | Yes |
| When it ends | Can be removed at 80% of original value; ends automatically at 78% | Often lasts the life of the loan with less than 10% down |
4 ways to remove PMI sooner
- Pay extra principal to reach 80% of the original value faster.
- Request removal in writing once you reach 80% and have a good payment history.
- Use a new appraisal if your home has gained value. Many lenders allow removal based on current value after a set period.
- Refinance into a new loan with at least 20% equity, if the numbers make sense.
Daniel’s tip: Paying PMI for a few years is often better than waiting years to save 20%, especially if home prices keep rising while you save.
See how your down payment changes your monthly payment.
Frequently asked questions
Do VA loans have PMI?
No. VA loans don’t have monthly mortgage insurance, though most have a funding fee unless you’re exempt.
Is PMI tax-deductible?
Tax rules change, so ask your tax advisor how it applies to your situation.
Filed under Money & Mortgages
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