How to Avoid PMI: 5 Strategies to Skip Private Mortgage Insurance

Private mortgage insurance protects the lender—not you—if you default on a conventional mortgage with less than 20 percent down. Lenders require PMI because loans with small down payments carry higher statistical default risk.

PMI costs typically range from 0.3 to 1.5 percent of the original loan amount annually, paid monthly as part of your mortgage payment. On a $300,000 loan, that translates to $75 to $375 per month.

The most straightforward way to skip PMI is to make a down payment of at least 20 percent of the home's purchase price. A 20 percent down payment gives you an LTV of 80 percent or lower, eliminating the lender's requirement for mortgage insurance on conventional loans.

On a $400,000 home, a 20 percent down payment means bringing $80,000 to closing. This can be a steep hurdle, especially in high-cost markets, but it immediately saves you the monthly PMI premium and reduces your total loan amount, which lowers your monthly principal and interest payments as well.

The Federal Housing Finance Agency (FHFA) sets loan limits for conforming conventional loans, and staying within those limits keeps your loan eligible for purchase by Fannie Mae or Freddie Mac, which standardizes PMI requirements.

Lender-paid mortgage insurance (LPMI) lets you avoid a separate monthly PMI bill by accepting a slightly higher interest rate. The lender pays the mortgage insurance premium upfront or as a single premium, then recoups the cost by charging you an interest rate typically 0.25 to 0.5 percentage points higher than a loan with borrower-paid PMI.

Another trade-off: you cannot deduct LPMI as mortgage insurance on your federal tax return (borrower-paid PMI has been deductible in some tax years, subject to income limits and legislative changes). And refinancing is your only way to remove the higher rate—there's no cancellation trigger, because the insurance cost is baked into the rate itself.

Check your loan estimate and closing disclosure carefully. LPMI is sometimes labeled "zero PMI" or described as a credit, but it always appears as a higher interest rate in Section A of the loan estimate.

A piggyback loan—also called an 80-10-10 or 80-15-5 loan—uses a second mortgage to cover part of the purchase price so your first mortgage stays at or below 80 percent LTV, avoiding PMI. The most common structure is 80 percent first mortgage, 10 percent second mortgage (often a home equity line of credit or fixed second), and 10 percent down payment.

Here's an example: on a $350,000 home, you'd take a $280,000 first mortgage (80 percent), a $35,000 second mortgage (10 percent), and pay $35,000 down (10 percent). The first mortgage has no PMI because its LTV is exactly 80 percent.

Piggyback loans have become less common since the 2008 financial crisis, and not all lenders offer them. Qualification requires strong credit (typically 680 or higher) and proof that you can afford both payments.

VA loans and USDA loans do not require private mortgage insurance, regardless of your down payment amount. These government-backed programs serve specific borrower groups and come with their own fees, but those fees work differently than monthly PMI.

USDA loans serve low- to moderate-income borrowers buying in eligible rural and suburban areas, as defined by the U.S. Department of Agriculture.

If you qualify for either program, the absence of traditional PMI can result in substantial savings, even after accounting for funding or guarantee fees. Check eligibility through a VA-approved lender or the USDA's property eligibility map on their website.

To request early cancellation, contact your loan servicer in writing. The servicer may require a new appraisal (at your expense, typically $300 to $500) to confirm the home's current value, especially if you are relying on appreciation rather than pay-down.

Remodeling or home improvements do not automatically increase your equity for PMI purposes unless you obtain an appraisal and your servicer agrees to the new valuation. Some loans, particularly high-LTV or investor-backed mortgages, carry lender-specific PMI removal rules that are stricter than the federal minimum.

Is it worth paying PMI to buy a home sooner?

Paying PMI can be worthwhile if home prices and interest rates are rising, because waiting to save a larger down payment may cost you more in higher purchase prices or rates than you would spend on PMI. Run the numbers: if renting costs nearly as much as owning and you have stable income, accepting PMI to enter the market now may build equity faster than delaying.

How much does PMI cost per month on a $300,000 loan?

PMI on a $300,000 loan typically ranges from $75 to $375 per month, depending on your credit score, down payment size, and the insurer's rate. Borrowers with excellent credit and 15 percent down usually pay toward the lower end; those with 5 percent down and fair credit pay the higher end.

Can you deduct PMI on your taxes?

Does FHA mortgage insurance work the same as PMI?

FHA loans carry mortgage insurance premium (MIP), not PMI, and MIP does not cancel automatically when you reach 20 percent equity. For FHA loans with less than 10 percent down, MIP remains for the life of the loan; with 10 percent or more down, it cancels after 11 years.

What credit score do you need to avoid PMI with a piggyback loan?

Most lenders require a credit score of at least 680 to approve a piggyback second mortgage, and many prefer 700 or higher. The second lien is a greater risk for the lender, so underwriting standards are tighter than for a single first mortgage.

Can you remove PMI without refinancing?