PMI on a mortgage is insurance you pay for that protects your lender if you stop paying, and if you put less than 20 percent down, you are paying for it in one form or another. It is also the tool that lets you buy a home with 3, 5, or 10 percent down instead of spending years saving 20, and the cost varies enormously with your loan program, your credit, and how the policy is structured. We spent a full episode on this one topic, so what follows is the whole picture: what it costs on each program, why you cannot dodge it, and the rules for getting it removed.
Private mortgage insurance, or PMI, is the conventional-loan version of mortgage insurance: a policy you pay for that reimburses the lender if you default. FHA has its own version, called a mortgage insurance premium (MIP), and VA and USDA each fund the same protection in their own way. Whatever the label, the job is identical.
Foreclosure is expensive for a lender. Interest keeps accruing, penalties stack up, legal fees pile on, and the property still has to be taken back and resold. Standard and Poor's has estimated that a lender, on average, eats about 26 percent of the loan's value completing the foreclosure process. A 20 percent down payment historically gave the lender a cushion against that loss, plus skin in the game from you. When you put down less, mortgage insurance covers the gap so the lender is comfortable making the loan at all.
One line holds across nearly every program: put 20 percent or more down and no lender requires mortgage insurance. Below that line, expect it.
Buyers shopping for loans sometimes hear a pitch like this: our loan has no PMI, and nobody else offers it. Be skeptical. Any loan headed to Fannie Mae or Freddie Mac with less than 20 percent down has mortgage insurance on it, period. If you do not see it as a line item, it is baked into the interest rate.
The mechanics are the same ones behind a lender credit. A lender can offer you a higher rate in exchange for cash toward your closing costs. With lender-paid mortgage insurance, the lender makes the same trade but keeps the cash and buys the insurance policy itself. You skip the monthly MI line and pay through a higher rate for the life of the loan. Sometimes that trade works out fine. Just understand you are still paying; the only question is where it shows up.
FHA charges two premiums, per FHA guidelines. The first is an upfront mortgage insurance premium of 1.75 percent of the loan amount. You do not write a check for it; it is financed on top of your base loan. The second is a monthly premium, which at the time this episode aired ran at an annual rate of 0.55 percent of the loan for a minimum-down purchase, following the first FHA premium cut in roughly 15 years. (Mortgage insurance schedules, program figures, and the example rates in this article reflect the market as of this episode, 3/21/2023, and they change over time; confirm current numbers with a lender.)
Let's run the numbers on a $467,700 purchase, the median-priced home at the time, with the minimum 3.5 percent down:
Two FHA quirks matter. The monthly rate drops slightly once you put 5 percent or more down, and loans above the local FHA limit in high-cost areas pay a higher monthly rate. The bigger issue is duration: with less than 10 percent down, FHA mortgage insurance lasts the life of the loan. Your home can double in value, you can knock $200,000 off the principal, and the premium stays. Put at least 10 percent down and it falls off automatically after 11 years. The exit for everyone else is a refinance, covered below.
FHA insurance is one-size. Conventional PMI is underwritten to your file, and the pricing swings are large. The insurer weighs:
We have priced mortgage insurance across 30+ years and $700M+ in funded loans, and the spread between two similar files still surprises people. In the year before this episode, the lowest quote we had written was 0.11 percent a year, for a strong borrower putting 15 percent down. The highest we had seen in recent years was about 1.45 percent, on an investment condo.
The side-by-side we ran makes the point. Same $467,700 purchase, 3 percent down, loan amount of $453,669. A married couple with 740 credit scores and a debt-to-income ratio under 40 percent priced at 0.47 percent, about $178 a month. A single borrower with a 680 score and the same ratios priced at 1.35 percent, about $510 a month. Same house, same down payment, nearly triple the premium. That 680 borrower is almost always better served putting the FHA and conventional quotes side by side, because FHA treats a 680 score as close to its best credit tier while conventional pricing punishes it.
Bumping the down payment helps more than most buyers expect. At 5 percent down (a $444,315 loan), the couple's rate fell from 0.47 to 0.30 percent, cutting the premium to about $111 a month.
You will also hear about single-premium PMI, one lump sum at closing with no monthly charge, and split-premium PMI, a smaller lump sum plus a reduced monthly. Both occasionally make sense, and we almost never write them; nearly all conventional loans use the monthly version, partly because most first-time buyers have better uses for a lump sum, starting with a bigger down payment.
All of this is why a documented pre-approval beats a guess. A lender who has not run your credit or reviewed your file cannot price your mortgage insurance; they can only guess at a number that legitimately ranges over a full percentage point. Before you trust anyone's payment estimate, make sure you know whether you were pre-qualified or actually pre-approved.
VA loans charge no monthly mortgage insurance at all, one of the reasons we consistently call VA the best loan program available to those who qualify. The VA covers its risk with a one-time funding fee, financed into the loan, that varies with your down payment and whether you have used the benefit before. Veterans who receive (or are entitled to receive) VA compensation for a service-connected disability are exempt from it entirely.
USDA loans are structured like FHA, with an upfront fee of 1 percent of the loan, about $4,677 on our example and cheaper than FHA's upfront premium even at zero down, plus a monthly fee well below FHA's, about $137 on the same example. Like FHA, it stays for the life of the loan.
Jumbo loans are all over the map. Many jumbo lenders require 20 percent down. Those that allow less either charge a higher rate and absorb the risk, buy coverage themselves, or occasionally charge a monthly premium.
This is the most common question we get, and the answer depends on the loan you have.
On a conventional loan, per the servicing rules:
Mortgage insurance is the price of getting into a home years before a 20 percent down payment would let you.
On an FHA loan with less than 10 percent down, there is exactly one exit: refinance into a program that does not require mortgage insurance. Whether that is worth doing depends on the rate you hold. We regularly hear from borrowers holding older FHA loans at rates far below current offerings who want the insurance gone; even with the premium included, their effective cost sits under what a new loan would run. The point of removing mortgage insurance is a lower total payment, and if a refinance raises the rate by more than the premium saves, keep the loan.
Buyers regularly tell us they refuse to pay mortgage insurance and plan to wait for 20 percent. Run the math before committing. Take the scenario we worked on the episode: a $500,000 target home with $25,000 saved, which is 5 percent down, leaves another $75,000 to reach 20 percent. Saving an aggressive $3,000 a month, that takes about 25 months. If prices rise even a modest, illustrative 2 percent a year while you save, the same house costs about $525,000 two years later. The 20 percent goalpost moved, and you also gave up two years of principal paydown and any appreciation you would have earned as an owner.
That math is an argument for running an honest projection, and to be explicit, it is no blanket push to buy. Mortgage insurance buys you years, and for many buyers a smaller down payment with real cash left in the bank is the stronger position. Buy when the timing fits your life and the full payment, insurance included, is one you are comfortable with from day one. If you want FHA and conventional priced side by side on your actual file, that is exactly what the free Roadmap conversation covers in about 20 minutes.
Stop guessing what you can really afford
Tell Josh and his team your situation, and you'll get the exact price range you qualify for, the loan that gets you the most home for your money, and a step-by-step plan to close. They handle your loan directly, never a referral, and go far beyond a basic pre-approval, so you stop second-guessing, tour with confidence, and write offers sellers take seriously.
Build my Roadmap →PMI is private mortgage insurance, a policy you pay for on a conventional loan with less than 20 percent down that reimburses the lender if you default. It exists because foreclosure is costly for lenders, and it is the reason buyers can purchase with 3 or 5 percent down instead of waiting years to save 20 percent. FHA loans carry an equivalent charge called a mortgage insurance premium, or MIP.
It depends on your down payment, credit score, number of borrowers, property type, and debt-to-income ratio. In our examples, a couple with 740 scores putting 3 percent down priced at about $178 a month, while a single 680-score borrower on the same house priced at about $510. Rates change over time, so have a lender price your actual file rather than relying on averages.
FHA loans carry mortgage insurance, though it is called MIP rather than PMI. Per FHA guidelines you pay an upfront premium of 1.75 percent of the loan, which is financed, plus a monthly premium. With less than 10 percent down the monthly premium lasts for the life of the loan; with 10 percent or more down it drops off automatically after 11 years.
It cancels automatically once your balance reaches 78 percent of the original purchase price, provided your payments are current and the value has not declined, and you can request removal at 80 percent. After two years of on-time payments, you can also ask your servicer to remove it based on appreciation, generally at 75 percent loan-to-value between years two and five, or 80 percent after five years.
You can avoid seeing it, but on a conventional loan under 20 percent down you cannot avoid paying for it. Lender-paid mortgage insurance removes the monthly line item by building the cost into a higher interest rate for the life of the loan. VA loans genuinely have no monthly mortgage insurance, funding the risk instead through a one-time fee that eligible disabled veterans skip entirely.
Sometimes, but do the projection honestly. While you save the difference, prices can rise, the 20 percent target grows with them, and you miss the principal paydown you would have made as an owner. In our example, saving $3,000 a month toward a $500,000 home took about 25 months, and modest 2 percent annual appreciation moved the target to $525,000 before the buyer got there.