If you’re putting less than 20% down, you’ll probably run into PMI. It’s not a scam and it’s not forever — here’s how it works.
What PMI is
Private mortgage insurance (PMI) is insurance that protects the lender (not you) in case you default. On conventional loans, lenders typically require it when your down payment is less than 20% — because you have less equity cushion. You pay the premium, usually bundled into your monthly payment.
Why it exists (and why it’s not all bad)
PMI lets you buy with a smaller down payment instead of waiting years to save 20%. For many buyers, getting into a home sooner — and building equity — outweighs the cost of temporary PMI. It’s the price of a lower down payment, not a penalty.
Roughly what it costs
PMI cost varies based on your down payment, credit, and loan, but it’s an added monthly amount until you reach enough equity. Your lender will quote the exact figure — factor it into your full monthly payment when budgeting.
How to get rid of it
This is the good news — PMI is usually temporary:
- As you pay down the loan and your equity grows, you can typically request cancellation once you reach about 20% equity.
- It generally falls off automatically when you hit around 22% equity (per the loan’s original schedule).
- Rising home values can get you there faster — though confirming that may require an appraisal.
(Note: government-backed loans like FHA handle mortgage insurance differently — ask your lender.)
The takeaway
PMI is the cost of buying with less than 20% down — often a worthwhile trade to stop renting and start building equity, and it goes away as you build equity. Just budget for it up front. (See How Much House Can You Afford.)
Want help weighing down-payment options? Reach out.
General educational information, not lending advice. PMI rules, costs, and removal vary by loan type and lender. Confirm specifics with a licensed lender.