PMI Explained: Private Mortgage Insurance for First-Time Buyers
Private mortgage insurance, or PMI, is a cost that surprises many first-time buyers. Research shows that a majority of buyers who put less than 20% down on a conventional loan pay PMI, yet many did not fully account for this cost when budgeting. This guide explains what PMI is, how much it costs, how to avoid it, and — critically — how to get rid of it.
PMI costs vary by lender and loan profile. Shopping multiple lenders is one of the most effective ways to reduce your PMI rate. Compare conventional loan offers including PMI rates through LendingTree.
For a comparison of FHA mortgage insurance vs. PMI, see the FHA vs. Conventional guide. For the full home buying roadmap, see the First-Time Home Buyer Guide 2026.
What Is PMI?
Private mortgage insurance is a policy that protects the lender — not the borrower — if the borrower defaults on the loan. When a buyer puts less than 20% down on a conventional mortgage, the lender is taking on more risk because the buyer has less equity in the home. PMI compensates the lender for that additional risk.
PMI is a monthly cost added to the mortgage payment. It does not build equity and provides no direct benefit to the borrower. Its sole purpose is to satisfy the lender’s risk requirement on low-down-payment loans.
How Much Does PMI Cost?
PMI rates vary based on:
- Credit score (higher score = lower PMI rate)
- Down payment amount (larger down payment = lower PMI rate)
- Loan type and term
- Lender and PMI provider
Industry data shows PMI typically ranges from 0.5% to 1.5% of the loan amount annually. On a $300,000 loan, that translates to $125 to $375 per month added to the mortgage payment.
| Credit Score Range | Down Payment | Approximate Annual PMI Rate | Monthly PMI on $300K Loan |
|---|---|---|---|
| 760+ | 5% | ~0.5% | ~$125 |
| 720-759 | 5% | ~0.7% | ~$175 |
| 680-719 | 5% | ~0.9% | ~$225 |
| 640-679 | 5% | ~1.2% | ~$300 |
Types of PMI
Borrower-Paid Monthly PMI (BPMI)
The most common form. An amount is added to each monthly mortgage payment. This type is cancelable once the loan reaches 80% loan-to-value (LTV).
Lender-Paid PMI (LPMI)
The lender pays the PMI premium but charges a higher interest rate in exchange. There is no separate PMI line item on the monthly payment, but the higher rate costs money over the life of the loan. LPMI cannot be canceled because it is embedded in the rate.
Single-Premium PMI
The entire PMI premium is paid upfront at closing (or rolled into the loan). This eliminates monthly PMI payments. It can make sense for buyers who plan to stay in the home long term.
When PMI Can Be Removed
The Homeowners Protection Act (HPA) of 1998 provides borrower rights around PMI cancellation on conventional loans:
- Borrower-requested cancellation: Once the loan balance reaches 80% of the original purchase price (based on amortization schedule or extra payments made), the borrower can request PMI cancellation in writing.
- Automatic cancellation: The lender must automatically cancel PMI once the loan balance reaches 78% of the original purchase price based on the original amortization schedule.
- Midpoint cancellation: PMI must be canceled at the midpoint of the loan term even if 78% LTV has not been reached.
PMI cancellation is based on the original purchase price, not current market value, unless the borrower orders a new appraisal (which some lenders allow after 24 months of payments with good payment history).
How to Avoid PMI
Put 20% Down
The most straightforward way to avoid PMI is a down payment of 20% or more. With sufficient home equity from the start, lenders do not require PMI. See the down payment assistance guide for programs that can help reach this threshold.
80-10-10 Piggyback Loan
An 80-10-10 structure uses a first mortgage for 80% of the price, a second mortgage (home equity loan or HELOC) for 10%, and a 10% down payment from the buyer. Because the first mortgage never exceeds 80% LTV, PMI is not required. The second mortgage typically carries a higher interest rate.
VA Loans
VA loans have no PMI requirement, which is one of their primary financial advantages. See the VA Loan guide for eligibility details.
USDA Loans
USDA loans use a guarantee fee structure rather than traditional PMI, and their annual fee (0.35%) is significantly lower than conventional PMI for most borrowers.
PMI vs. FHA Mortgage Insurance: Which Is Cheaper?
For buyers with credit scores above 680, conventional PMI is generally cheaper than FHA mortgage insurance on an ongoing monthly basis, and conventional PMI is cancelable while FHA MIP typically is not (without refinancing). For buyers with scores below 680, the comparison is closer and depends on specific rates offered.
Compare Lenders on PMI Rates
| Lender | Low Down Payment Options | Get a Quote |
|---|---|---|
| LendingTree | Multiple lender comparison | Compare PMI Rates |
| Rocket Mortgage | 3% down conventional available | Get a Quote |
| Better | 3% down, no lender fees option | Get a Quote |
| New American Funding | Flexible down payment programs | Get a Quote |
Bottom Line
PMI is a cost of buying a home with less than 20% down on a conventional loan, but it is not permanent. Understanding when and how to cancel PMI can save hundreds of dollars per month once sufficient equity is reached. Comparing lenders’ PMI rates alongside interest rates ensures you are getting the full picture of what a loan will actually cost each month.
Compare conventional loan offers and PMI rates from multiple lenders through LendingTree.