Private mortgage insurance (PMI) adds $50–$300 or more to your monthly mortgage payment, and most first-time buyers have no idea it exists until their first loan estimate arrives. This guide explains exactly what PMI is, what it costs, and the options available for eliminating it.
Some lenders charge significantly less for PMI: Compare PMI rates across lenders on LendingTree — the difference can be hundreds of dollars per year.
What Is PMI?
PMI is insurance that protects the lender — not you — if you default on your mortgage. It is required by conventional lenders when your down payment is less than 20% of the home’s purchase price. This threshold exists because research shows that borrowers with less than 20% equity default at higher rates.
PMI does not cover your mortgage payments if you lose your job. It does not pay off your loan if you die. Those products (mortgage payment protection insurance and mortgage life insurance) are separate and optional. PMI exists solely to protect the lender’s investment.
How Much Does PMI Cost?
PMI rates depend on your loan-to-value ratio, credit score, and loan type. Typical rates run 0.5–1.5% of the loan amount per year.
| Loan Amount | PMI Rate | Annual PMI Cost | Monthly PMI Cost |
|---|---|---|---|
| $250,000 | 0.7% | $1,750 | $146 |
| $300,000 | 0.8% | $2,400 | $200 |
| $350,000 | 0.9% | $3,150 | $263 |
| $400,000 | 1.0% | $4,000 | $333 |
Higher credit scores get lower PMI rates. A borrower with a 760 score pays significantly less than a borrower with a 680 score on the same loan amount. See our credit score guide for specifics on how scores affect mortgage costs.
FHA MIP vs. Conventional PMI
FHA loans do not use PMI — they use Mortgage Insurance Premiums (MIP), which work differently:
- FHA upfront MIP: 1.75% of the loan amount added to your balance at closing
- FHA annual MIP: 0.55% per year for most 30-year loans with less than 10% down
- FHA MIP on loans with less than 10% down: required for the life of the loan
Conventional PMI is typically cheaper on a monthly basis and can be canceled. FHA MIP on a 30-year loan with less than 10% down cannot be removed — only refinancing eliminates it. See our FHA vs. conventional comparison for the full cost breakdown.
How to Cancel PMI
Under the Homeowners Protection Act, lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price. You can also request cancellation when you reach 80% LTV based on the original appraisal value.
Steps to request early cancellation:
- Confirm your current loan balance with your servicer
- Calculate your LTV: (loan balance / original appraised value) x 100
- If LTV is at or below 80%, submit a written request to your servicer
- The servicer may require a new appraisal to verify value has not declined
How to Avoid PMI Entirely
Put Down 20%
The most straightforward approach. On a $300,000 home, a 20% down payment is $60,000. For many first-time buyers, this is not realistic.
Lender-Paid PMI (LPMI)
Some lenders offer to pay PMI in exchange for a slightly higher interest rate. This is called lender-paid PMI or LPMI. The tradeoff: your monthly payment may be similar, but because the PMI is built into the rate, you cannot cancel it the way you can with borrower-paid PMI.
Piggyback Loan (80/10/10)
A piggyback loan structure uses a first mortgage at 80% LTV plus a second mortgage (HELOC or home equity loan) for 10%, with a 10% down payment. This avoids PMI on the primary mortgage. The second loan typically has a higher rate, so run the numbers carefully.
VA and USDA Loans
VA loans have no PMI requirement regardless of down payment. USDA loans charge a guarantee fee instead (1% upfront + 0.35% annual), which is typically cheaper than conventional PMI. Eligible buyers should always compare these options. See our VA loan guide and USDA loan guide for details.
Lender Comparison
| Lender | Est. Rate Range | Min Credit Score | Min Down Payment | Best For |
|---|---|---|---|---|
| LendingTree | Varies by lender | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Comparing multiple offers at once |
| Rocket Mortgage | Competitive market rates | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 1% (ONE+ program) | Fast digital approval process |
| Better.com | Competitive market rates | 620 | 3% | Low-fee online experience |
| New American Funding | Competitive market rates | 500 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Buyers with lower credit scores |
Bottom Line
PMI is a cost, not a deal-breaker. For buyers who cannot put down 20%, accepting PMI in exchange for entering the market and building equity often makes more financial sense than waiting. The key is to choose a lender with competitive PMI rates and to cancel it as soon as you reach 20% equity.
Compare lenders and PMI rates on LendingTree — some lenders are significantly cheaper than others.