Category: Home Buying

Buying your first home is one of the biggest financial decisions you will ever make. The good news is that first-time homebuyers have access to a wide range of loan programs designed to make homeownership more affordable. This guide covers every major first-time homebuyer loan option available in 2026, what you need to qualify, and how to choose the right program.

What Is a First-Time Homebuyer Loan?

A first-time homebuyer loan is any mortgage product or assistance program with terms designed to help people who have not owned a home in the past three years. Most programs offer one or more of these benefits: a lower down payment requirement, reduced mortgage insurance costs, below-market interest rates, or down payment assistance.

The official definition used by most programs: you are a first-time buyer if you have not owned a primary residence in the past three years. That means many people who owned a home years ago can still qualify.

FHA Loans: The Most Popular First-Time Buyer Option

Federal Housing Administration (FHA) loans are backed by the government and issued by FHA-approved private lenders. They are consistently the most popular choice for first-time buyers because of their low minimum requirements.

FHA Loan Requirements in 2026

• Minimum credit score: 580 for 3.5% down payment; 500 to 579 for 10% down
• Minimum down payment: 3.5% with a 580+ credit score
• Debt-to-income ratio: Up to 50% allowed with compensating factors
• Loan limits: $498,257 in most areas; up to $1,149,825 in high-cost markets
• Mortgage insurance: Required for the life of the loan (unless you put 10% down, in which case it drops after 11 years)

The biggest downside of FHA loans is mortgage insurance. You pay an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount plus an annual MIP of 0.55% for most borrowers. This adds meaningful cost over the life of the loan compared to conventional loans.

Conventional 97 Loans: 3% Down With No Upfront MIP

Fannie Mae and Freddie Mac both offer conventional loans with just 3% down through their HomeReady and Home Possible programs. Unlike FHA, there is no upfront mortgage insurance premium, and private mortgage insurance (PMI) can be canceled once you reach 20% equity.

Conventional 97 Loan Requirements

• Minimum credit score: 620 (higher scores get better rates)
• Down payment: 3%
• Income limits: HomeReady and Home Possible require income at or below 80% of area median income (AMI)
• Mortgage insurance: Required until 20% equity reached; cancelable

If your credit score is above 660 and you qualify for HomeReady or Home Possible, the reduced PMI costs can make conventional loans cheaper than FHA long-term.

VA Loans: The Best Deal for Eligible Veterans

VA loans are guaranteed by the Department of Veterans Affairs and available to eligible active-duty military, veterans, and surviving spouses. If you qualify, VA loans are the best deal in the mortgage market.

VA Loan Benefits

• No down payment required
• No private mortgage insurance
• Competitive interest rates (typically lower than conventional)
• Flexible credit requirements (most lenders require 580-620)
• Funding fee: 2.15% for first use with no down payment (can be rolled into the loan)

The VA funding fee can be waived if you receive VA disability compensation. Veterans with a disability rating of 10% or higher pay no funding fee.

USDA Loans: Zero Down Payment for Rural and Suburban Areas

USDA loans are guaranteed by the U.S. Department of Agriculture and available in eligible rural and suburban areas. Despite the name, many suburban areas outside major cities qualify.

USDA Loan Requirements

• No down payment required
• Income limits: Household income must be below 115% of area median income
• Location: Property must be in a USDA-eligible area (check the USDA eligibility map)
• Credit score: Most lenders require 640+
• Guarantee fee: 1% upfront plus 0.35% annual fee

USDA loans are an excellent option for buyers outside major metro areas who meet the income limits. The combination of zero down and low fees makes them highly affordable.

State and Local First-Time Homebuyer Programs

Beyond federal programs, every state operates housing finance agencies that offer additional assistance. These programs typically provide:

• Down payment assistance (DPA): Grants or forgivable second loans of 3% to 5% of the purchase price
• Below-market first mortgages: Interest rates below the conventional market rate
• Mortgage credit certificates (MCCs): Federal tax credits worth 20% to 40% of annual mortgage interest

To find programs in your state, contact your state housing finance agency. Income and purchase price limits vary significantly by state and county.

How to Compare First-Time Homebuyer Loan Programs

Do not focus only on the interest rate. The true cost of a mortgage includes the rate, fees, and mortgage insurance. Use this framework to compare options:

1. Calculate total monthly payment including principal, interest, taxes, insurance, and mortgage insurance
2. Calculate total cash needed to close including down payment, closing costs (typically 2-5% of the loan), and reserves
3. Calculate long-term cost using the APR, which includes fees amortized over the loan term
4. Check cancelability of mortgage insurance — PMI on conventional loans can be canceled; FHA MIP typically cannot

Steps to Qualify for a First-Time Homebuyer Loan

Step 1: Check Your Credit Score

Pull your free credit reports from AnnualCreditReport.com. Review for errors and dispute inaccuracies. For FHA loans you need at minimum a 580. For conventional loans, aim for 620 or higher. A score above 740 unlocks the best conventional rates.

Step 2: Calculate Your Debt-to-Income Ratio

Add up all monthly debt payments (car, student loans, credit cards, etc.) and divide by gross monthly income. Most programs require a DTI below 43% to 50%. The lower your DTI, the better your loan terms.

Step 3: Save for Down Payment and Closing Costs

Even low-down-payment programs require closing costs, typically 2% to 5% of the purchase price. Some programs allow seller concessions or gift funds to cover closing costs.

Step 4: Get Pre-Approved

Pre-approval from a lender tells you exactly how much home you can afford and signals to sellers that you are a serious buyer. Apply to multiple lenders within a 45-day window to minimize credit score impact — multiple mortgage inquiries in that period count as one inquiry.

Step 5: Complete a Homebuyer Education Course

Most down payment assistance programs require a HUD-approved homebuyer education course. Many are available free online and take three to eight hours. Completing one before you apply speeds up the process and often qualifies you for better terms.

First-Time Homebuyer Loans: Quick Comparison

Loan Type	Min. Down Payment	Min. Credit Score	Mortgage Insurance	Who Qualifies
FHA	3.5%	580	Required (life of loan)	Anyone
Conventional 97	3%	620	Required (cancelable)	Income limits may apply
VA	0%	580-620	None	Veterans/military only
USDA	0%	640	Annual fee (low)	Rural/suburban areas, income limits

Frequently Asked Questions

Can I use gift money for a first-time homebuyer down payment?

Yes. FHA, conventional, VA, and USDA loans all allow down payment gifts from family members. The gift must be documented with a gift letter stating no repayment is expected.

How long does the first-time homebuyer loan process take?

From pre-approval to closing typically takes 30 to 60 days. FHA and USDA loans sometimes take slightly longer due to additional underwriting steps.

Do first-time homebuyer programs have income limits?

FHA and VA loans have no income limits. USDA loans require household income below 115% of area median income. Conventional HomeReady and Home Possible require income below 80% of AMI.

Can I qualify as a first-time homebuyer if I owned a home before?

Yes, if you have not owned a primary residence in the past three years. This three-year rule applies to most federal and state first-time buyer programs.

Related: How Much House Can I Afford? 2026 Calculation Guide

Related: What Is PMI? How to Remove Private Mortgage Insurance in 2026

Related: What Is an Adjustable-Rate Mortgage (ARM)? 2026 Guide

Related: What Is a HELOC? Home Equity Line of Credit Explained

If you put less than 20% down, you’ll likely pay private mortgage insurance (PMI) — learn how it works and how to get rid of it.

Homeowners aged 62 and older who have built substantial equity have another financing option worth understanding: see our guide to what a reverse mortgage is and when it makes sense. For reducing the ongoing cost of ownership, see how to lower your property taxes through exemptions and appeals.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. Because the government backs the loan, lenders take on less risk and can offer more flexible terms. FHA loans are popular with first-time homebuyers who have limited savings or a credit score below 740.

The main advantages of FHA loans are the low minimum credit score (580 for a 3.5% down payment) and the lower down payment compared to conventional loans. The main disadvantage is the mortgage insurance premium (MIP), which you pay for the life of the loan in most cases.

FHA Loan Requirements in 2026

Credit Score

The minimum credit score to qualify for an FHA loan depends on your down payment:

• 580 or higher: Minimum 3.5% down payment
• 500 to 579: Minimum 10% down payment
• Below 500: Not eligible for an FHA loan

Individual lenders may require higher scores. Many FHA lenders set their own minimum at 620 even though the FHA allows 580. Shop multiple lenders to find one willing to work with your score.

Down Payment

The minimum down payment for an FHA loan is 3.5% of the purchase price (for borrowers with a credit score of 580 or higher). On a $300,000 home, that is $10,500 down.

The down payment can come from your own savings, a gift from a family member, or a down payment assistance program. It cannot come from a personal loan.

Debt-to-Income Ratio (DTI)

Your DTI ratio measures your monthly debt payments against your gross monthly income. FHA guidelines allow:

• Front-end DTI: Up to 31% (housing costs only)
• Back-end DTI: Up to 43% (all debts combined)

With compensating factors — like a high credit score or large cash reserves — some lenders will approve DTIs up to 50%.

Employment and Income

FHA lenders want to see at least two years of steady employment history. You do not need to have had the same employer for two years. What matters is consistent employment in the same field or industry.

Self-employed borrowers need two years of tax returns showing stable or growing income.

Property Requirements

The home must meet FHA minimum property standards. An FHA appraiser will check that the property:

• Is structurally sound with a solid foundation and roof
• Has working electrical, plumbing, and heating systems
• Has no health or safety hazards (like lead paint on pre-1978 homes)
• Will be your primary residence — FHA loans are not for investment properties

FHA Loan Limits in 2026

FHA loan limits vary by county. In 2026, the standard limits are:

• Low-cost areas: $498,257 for a single-family home
• High-cost areas: Up to $1,149,825 for a single-family home

Check the FHA loan limits for your specific county before shopping for a home.

FHA Mortgage Insurance Premiums (MIP)

FHA loans require two types of mortgage insurance:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing (or rolled into the loan)
• Annual MIP: 0.55% to 1.05% of the loan balance per year, paid monthly

For most borrowers, annual MIP applies for the life of the loan if your down payment is less than 10%. If you put 10% or more down, MIP drops off after 11 years.

This is the biggest drawback of FHA loans. Once you reach 20% equity, you cannot cancel FHA MIP the way you can cancel conventional PMI. Your option is to refinance into a conventional loan.

FHA Loan vs. Conventional Loan

Here is when each loan type makes more sense:

• FHA: Credit score below 700, less than 20% down, or a higher DTI ratio. The lower qualification bar is the main appeal.
• Conventional: Credit score above 720, at least 5% to 10% down, and the ability to cancel PMI once you reach 20% equity. Lower total cost over time for borrowers who qualify.

Run the numbers for both loan types before choosing. A mortgage broker can help you compare total costs including insurance.

How to Apply for an FHA Loan

1. Check your credit score. Pull your free credit reports at AnnualCreditReport.com and dispute any errors.
2. Calculate your DTI. Add up your monthly debt payments and divide by your gross monthly income.
3. Save your down payment. You need at least 3.5% plus closing costs (typically 2% to 5% of the loan amount).
4. Get pre-approved. Apply with two or three FHA-approved lenders and compare loan estimates.
5. Find an FHA-approved home. Your real estate agent can help you filter for properties likely to pass the FHA appraisal.

Bottom Line

FHA loans are a strong option for first-time buyers with lower credit scores or limited savings. The 3.5% down payment and flexible credit requirements open the door to homeownership for people who cannot qualify for conventional loans.

The tradeoff is mortgage insurance for the life of the loan. Plan to refinance into a conventional loan once you reach 20% equity to eliminate that cost.

If you own a home with equity, you have two main ways to borrow against it: a home equity line of credit (HELOC) or a home equity loan. They both let you tap the equity in your home at lower interest rates than personal loans or credit cards — but they work very differently, and choosing the wrong one can cost you.

HELOC vs Home Equity Loan: Quick Comparison

Feature	HELOC	Home Equity Loan
Interest rate	Variable (prime + margin)	Fixed
Disbursement	Draw as needed (revolving credit line)	Lump sum at closing
Repayment	Interest-only during draw period; then principal + interest	Fixed monthly payments from day one
Draw period	Typically 10 years	No draw period — full amount borrowed upfront
Repayment period	Typically 20 years after draw period	5–30 years fixed term
Closing costs	Lower (some lenders waive entirely)	Higher (similar to a small mortgage)
Best for	Ongoing or uncertain expenses	One-time large expenses with known amount

What Is a HELOC?

A home equity line of credit is a revolving credit line secured by your home. During the draw period (usually 10 years), you can borrow up to your approved limit, pay it back, and borrow again — similar to a credit card. Interest is typically charged only on what you draw.

HELOC interest rates are variable, tied to the prime rate plus a margin set by the lender. When the Federal Reserve raises rates, your HELOC rate goes up. When rates fall, so does your payment.

After the draw period ends, most HELOCs enter a 20-year repayment period where the balance converts to a principal-and-interest loan. Some HELOCs require a balloon payment at the end of the draw period instead — read your terms carefully.

What Is a Home Equity Loan?

A home equity loan is a second mortgage. You borrow a fixed amount at a fixed interest rate, and the loan is repaid in equal monthly installments over a set term — typically 5 to 30 years. The entire loan amount is disbursed at closing.

Because the rate is fixed, your payment never changes. This predictability makes home equity loans the preferred choice for large one-time expenses where you know the total cost upfront.

When a HELOC Makes More Sense

Home Renovation with Uncertain Costs

If you are renovating and do not know the final cost — or you want to draw funds in stages as work is completed — a HELOC lets you borrow incrementally. You only pay interest on what you actually use, not the full approved amount. If the renovation comes in under budget, you are not stuck with a loan for more than you needed.

Ongoing Expenses or Emergency Access

A HELOC functions well as a financial backstop. You can open a line, not draw on it, and have it available for emergencies or ongoing needs like tuition payments over several years. You pay nothing unless you actually draw.

Lower Starting Rate

HELOC rates are typically lower than fixed home equity loan rates at the time of borrowing. If rates stay flat or fall, you can save money versus taking a fixed loan. This advantage reverses if rates rise.

When a Home Equity Loan Makes More Sense

Large One-Time Expenses

If you are paying for a kitchen remodel with a defined scope, paying off a specific debt, or funding a known expense like a vehicle purchase, a home equity loan gives you all the money at once with a fixed payment. There is no risk of rate increases, and you know exactly when the loan is paid off.

Debt Consolidation

Rolling high-interest credit card or personal loan debt into a fixed-rate home equity loan is one of the most common uses. You trade 20–25% credit card rates for a 7–9% fixed home equity loan rate, with a defined payoff date. Because the rate and payment are fixed, it is easier to budget and more predictable than a HELOC.

Rate Environment Uncertainty

If you are borrowing during a rising rate environment and expect rates to continue climbing, locking in a fixed rate on a home equity loan protects you from payment increases over the life of the loan.

Risks of Both Products

Both a HELOC and a home equity loan use your home as collateral. If you default, the lender can foreclose. This is a fundamentally different risk profile than credit card debt or a personal loan, where the worst outcome is credit damage and collections — not losing your home.

Specific risks by product:

• HELOC: Payment shock at the end of the draw period (interest-only payments can double when principal repayment begins); rate increases can significantly raise payments on variable-rate lines
• Home equity loan: If home values drop, you could owe more than the home is worth if you have a first mortgage and a home equity loan combined; higher closing costs than a HELOC

How Much Can You Borrow?

Both products are limited by your combined loan-to-value (CLTV) ratio — the sum of your first mortgage balance plus the new equity loan or HELOC, divided by the home’s appraised value. Most lenders allow a maximum CLTV of 80–90%.

Example: Home appraised at $400,000. First mortgage balance: $220,000. At 85% CLTV limit, maximum combined debt is $340,000. Available equity to borrow: $340,000 – $220,000 = $120,000.

You will also need a qualifying credit score — typically 620–680 minimum, with the best rates going to borrowers above 720.

Tax Deductibility

Interest on home equity loans and HELOCs is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. Using equity to consolidate credit card debt or pay for a car is generally not deductible under current tax law. Consult a tax professional to determine how this applies to your situation.

Bottom Line

Use a HELOC for ongoing or phased expenses where you want flexibility and do not need all the money upfront. Use a home equity loan for a single large expense with a known total cost where predictability and a fixed payoff date matter more than flexibility. If you are consolidating debt, a home equity loan’s fixed rate and term typically serves you better than a variable HELOC. In both cases, treat the borrowing seriously — your home is on the line.

The USDA loan is one of the few true no-down-payment mortgage options available to U.S. buyers, and it is consistently underused because buyers do not know they qualify. If you are buying in a rural or suburban area, a USDA loan can mean $0 down, a competitive interest rate, and lower mortgage insurance costs than an FHA loan.

Here is what you need to know about USDA loan requirements in 2026.

What Is a USDA Loan?

USDA loans are backed by the U.S. Department of Agriculture through the Single-Family Housing Guaranteed Loan Program. They are available for homes in eligible rural and suburban areas and are offered through USDA-approved private lenders (banks, credit unions, mortgage companies). The USDA guarantees the loan, which reduces the lender’s risk and allows for 0% down payment financing.

USDA Loan Requirements 2026

Location Requirements

The home must be in an eligible area as defined by the USDA. Eligible areas are generally rural communities and suburban areas with populations under 35,000. Many small cities, towns, and suburbs qualify — the map is larger than most buyers expect.

You can check property eligibility at the USDA eligibility map. Enter any property address to see if it qualifies. Suburbs of major metro areas often qualify even if they feel suburban rather than rural.

Income Limits

USDA loans have income limits based on your county and household size. Your adjusted gross household income cannot exceed 115% of the median income for your area.

In 2026, income limits typically range from around $112,450 for a 1–4 person household in most areas, with higher limits in high-cost counties. The USDA adjusts these limits annually. Use the USDA income eligibility tool to enter your household size and location for the exact limit in your area.

Note: USDA counts all household members’ income, not just the borrowers on the loan. If you have adult children living at home, their income may be included.

Credit Score Requirements

Most USDA-approved lenders require a minimum 640 credit score for streamlined underwriting (the automated approval process). Borrowers with scores below 640 can still qualify but require manual underwriting, which involves more documentation and stricter review.

There is no official minimum credit score set by the USDA itself — the 640 threshold is a lender guideline that enables automated approval. Some lenders will go as low as 580 with strong compensating factors like low debt, stable employment, and significant savings.

Employment and Income Requirements

USDA lenders want to see stable employment history:

• 2 years of steady employment history in the same field
• Consistent income with no large unexplained gaps
• Self-employed borrowers typically need 2 years of tax returns showing consistent income

Debt-to-Income Ratio (DTI)

USDA guidelines typically allow:

• Front-end DTI: Up to 29% (housing costs as a percentage of gross monthly income)
• Back-end DTI: Up to 41% (all monthly debt payments including housing)

Some lenders will approve borrowers above these thresholds with compensating factors, particularly through manual underwriting. Strong credit and savings can offset a higher DTI.

Primary Residence Requirement

USDA loans are for primary residences only. Investment properties and vacation homes do not qualify. You must intend to occupy the home as your main residence.

USDA Loan Mortgage Insurance

USDA loans require two types of mortgage insurance:

• Upfront guarantee fee: 1% of the loan amount, typically rolled into the loan rather than paid at closing
• Annual fee: 0.35% of the remaining loan balance per year, paid monthly

For comparison, FHA loans charge 1.75% upfront and 0.55% annually for most borrowers. USDA mortgage insurance is meaningfully cheaper, which makes the monthly payment lower on equivalent loan amounts.

Unlike FHA, USDA does not have a fixed term for mortgage insurance. It is recalculated each year based on the remaining loan balance, so it decreases as you pay down principal — but it does not automatically cancel at 80% LTV like conventional PMI.

USDA Loan vs FHA Loan vs Conventional Loan

Feature	USDA	FHA	Conventional
Down payment	0%	3.5% (580+ score)	3–20%
Min credit score	640 (streamlined)	580	620
Location requirement	Yes — rural/suburban	No	No
Income limit	Yes	No	No
Upfront MIP/fee	1.0%	1.75%	None
Annual MIP/PMI	0.35%	0.55%	0.5–1.5% (if <20% down)

If you qualify for USDA, the $0 down and lower ongoing mortgage insurance cost make it one of the best first-time buyer options available — better than FHA for most borrowers who meet the location and income requirements.

Property Requirements

The home must meet USDA property standards:

• Must be a primary residence (single-family home, approved condos, or manufactured homes in some cases)
• Must meet basic HUD minimum property standards — structurally sound, functional utilities, no safety hazards
• Must be in an eligible USDA location
• No farms or income-producing properties

An appraisal is required as part of the USDA loan process, and the appraiser will flag any property conditions that need to be addressed before the loan can close.

How to Apply for a USDA Loan

1. Check the property address on the USDA eligibility map
2. Verify your household income is below the limit for your area
3. Find a USDA-approved lender (most major banks, credit unions, and mortgage companies participate)
4. Get pre-approved — provide pay stubs, W-2s, 2 years of tax returns, and bank statements
5. Make an offer on an eligible property
6. Complete the standard mortgage closing process

The USDA loan process takes slightly longer than conventional loans — typically 30–45 days — because the lender must submit the loan to the USDA for approval after underwriting. Budget extra time if your contract has a financing contingency.

Bottom Line

USDA loans are an underused option that can save first-time buyers tens of thousands of dollars in down payment costs compared to conventional financing. If you are buying in a suburban or rural area and your household income is under the limit, check USDA eligibility before assuming you need to put money down. The 0% down requirement, lower mortgage insurance, and competitive rates make it one of the most favorable loan programs available in 2026.

Related: USDA Loan Requirements 2026: Eligibility, Income Limits, and Credit Score

Related: How to Improve Your Credit Score in 30 Days: 6 Moves That Actually Work

Private mortgage insurance (PMI) is a fee many homebuyers pay when they cannot put 20% down on a conventional mortgage. It protects the lender — not you — if you default on the loan. Most borrowers want to eliminate PMI as quickly as possible, and understanding how it works is the first step.

What Is PMI?

PMI is insurance required by most conventional mortgage lenders when a borrower’s down payment is less than 20% of the home’s purchase price. The premium is added to your monthly mortgage payment (or paid upfront, depending on the structure).

PMI exists because lenders consider low-down-payment borrowers higher risk. The insurance compensates the lender if you stop making payments and they have to foreclose.

How Much Does PMI Cost?

PMI typically costs 0.2% to 2% of your loan amount annually, depending on your credit score, loan-to-value ratio, and loan type. The premium is added to your monthly mortgage payment.

Example:

• Home price: $350,000
• Down payment: 10% ($35,000)
• Loan amount: $315,000
• PMI rate: 0.7% annually
• Annual PMI cost: $2,205
• Monthly PMI payment: ~$184

As a general estimate:

• Credit score above 760 + 10% down: approximately 0.20%–0.50% of loan value
• Credit score 700–759 + 5% down: approximately 0.50%–1.00%
• Credit score below 700 + 5% down: approximately 1.00%–2.00%

Types of PMI

Borrower-Paid PMI (BPMI)

The most common type. The monthly premium is added to your mortgage payment until you reach 20% equity. This is automatically cancelled when you reach 22% equity based on the original purchase price.

Single-Premium PMI (SPMI)

You pay the entire PMI premium upfront at closing. Monthly payments are lower, but you lose the upfront amount if you refinance or sell before building significant equity.

Lender-Paid PMI (LPMI)

The lender pays the PMI premium in exchange for a higher interest rate on your loan. There is no separate PMI line item, but you pay a higher rate for the life of the loan — even after you would have otherwise cancelled BPMI. This is often the more expensive option long-term.

Split-Premium PMI

A hybrid approach where you pay part upfront and part monthly. It reduces monthly costs without requiring the full upfront premium.

How Long Do You Pay PMI?

Under the Homeowners Protection Act (HPA), lenders must automatically cancel borrower-paid PMI when your loan balance reaches 78% of the original purchase price (i.e., 22% equity), based on your scheduled payment timeline.

You can also request cancellation when your loan balance reaches 80% of the original purchase price (20% equity). To do this, you must:

• Have a good payment history (no payments 30+ days late in the past year)
• Request cancellation in writing
• Confirm your property value has not declined (lender may require an appraisal)

How to Avoid PMI

Put 20% Down

The simplest solution: save a 20% down payment before buying. On a $350,000 home, that is $70,000. This eliminates PMI entirely and reduces your loan balance, which lowers your monthly payment.

Piggyback Loan (80/10/10)

Take out a primary mortgage for 80% of the purchase price, a second mortgage (home equity loan or HELOC) for 10%, and put 10% down yourself. The primary mortgage stays at 80% LTV, which avoids PMI. The second mortgage has a higher rate, but may cost less than PMI depending on the amounts and rates involved.

Lender-Paid PMI

As mentioned, the lender absorbs the PMI premium in exchange for a higher interest rate. This eliminates the monthly PMI line item but adds cost via a permanently higher rate. Run the math over your expected ownership period before choosing this option.

VA Loans (for Eligible Borrowers)

VA loans, available to veterans and active military, require no down payment and no PMI. The VA funding fee is a one-time charge that is often less than years of PMI payments.

USDA Loans

USDA loans (for eligible rural and suburban properties) have no PMI but do charge an annual guarantee fee (currently 0.35% of the outstanding balance), which is lower than conventional PMI in most cases.

How to Remove PMI Early

You do not have to wait for automatic cancellation. There are two ways to speed up the process:

Make Extra Principal Payments

Every extra dollar applied to your principal reduces your loan balance and gets you to 80% LTV faster. Even modest extra payments each month can shave months or years off your PMI timeline.

Get a New Appraisal

If your home has appreciated significantly since purchase, a new appraisal may show you have already reached 80% LTV based on current value (not original purchase price). Many lenders allow PMI cancellation based on appraised value if:

• You have owned the home for at least 2 years, OR
• You have owned it for at least 5 years and the value has increased enough to put you at 80% LTV

An appraisal costs $300–$600 but can save thousands in PMI if your home has appreciated.

PMI vs. MIP: What Is the Difference?

PMI is for conventional loans. FHA loans have their own version called Mortgage Insurance Premium (MIP). There are key differences:

• MIP includes both an upfront premium (1.75% of the loan amount) and an annual premium (0.55%–1.05%)
• For FHA loans with less than 10% down, MIP lasts the life of the loan — it cannot be cancelled the way PMI can
• For FHA loans with 10% or more down, MIP drops off after 11 years

This is a significant long-term cost of FHA loans. Borrowers who can qualify for a conventional loan and plan to stay in the home for many years are often better served by a conventional loan with PMI (which can be cancelled) than an FHA loan with permanent MIP.

Bottom Line

PMI adds real cost to your monthly mortgage payment, but it is not permanent. The fastest paths to eliminating it are reaching 20% equity through payments and appreciation, making extra principal payments, or getting a new appraisal after your home increases in value. If you are buying soon, run the numbers on whether a 20% down payment, a piggyback loan, or a VA/USDA loan eliminates PMI entirely from the start.