If you’ve read how to buy your first house, you already ran into the line about PMI kicking in below 20% down. That’s usually where the guide moves on, and where the real questions start. Is PMI actually worth avoiding by saving longer, or is that advice from a different era of home prices? How much does it really cost you a month? And once you’re paying it, how do you actually get rid of it?
Short version: PMI (private mortgage insurance) is required on most conventional loans when you put down less than 20%, typically costs between 0.46% and 1.50% of your loan amount per year depending on your credit score, and it’s temporary. It cancels automatically once your loan balance hits 78% of the home’s original value, as long as you keep making payments. Waiting years to save the full 20% just to avoid it isn’t automatically the smarter move, and for 2026 there’s a new tax wrinkle worth knowing about too.
What PMI Actually Protects, and Who
PMI protects your lender, not you. If you default, PMI is what pays the lender back for part of their loss, which is exactly why they’re willing to lend you money with less than 20% down in the first place. Lenders require it on conventional loans below that 20% threshold because a smaller down payment means less cushion if the market dips and they have to foreclose. It’s not a scam or a junk fee, it’s the actual mechanism that makes low-down-payment conventional loans possible at all.
There are a few forms it can take. Most borrowers pay BPMI (borrower-paid monthly PMI), a line item added to your monthly payment. Some lenders offer single-premium PMI, where you pay the whole cost upfront at closing instead of monthly, which lowers your payment but doesn’t refund if you sell or refinance quickly. And there’s LPMI (lender-paid PMI), where the lender covers the PMI cost but bakes it into a permanently higher interest rate instead. LPMI can look attractive on a rate sheet, but since it’s part of your rate rather than a separate fee, it doesn’t go away when you hit 20% equity the way BPMI does. The only way out of LPMI is refinancing.
What It Actually Costs
Credit score is the single biggest factor, more than your down payment size. On a $300,000 loan, a borrower with a 760+ credit score might pay around 0.46% annually, roughly $115 a month. A borrower with a 620-639 score on that same loan can pay up to 1.50%, roughly $375 a month, three times as much for identical coverage on an identical loan. Your down payment size matters too, the closer you are to 20%, the lower your rate, but credit score does more of the heavy lifting than most people expect.
Pushing Back on “Just Save 20% and Skip It”
You’ve probably heard the advice to hold off buying until you’ve saved the full 20% down, avoid PMI entirely, done deal. It’s not wrong exactly, but it skips a real trade-off worth naming directly. Home prices and rents in most markets keep moving while you’re saving, so the years spent chasing that last chunk of down payment can cost you more in missed appreciation and continued rent payments than the PMI itself would have. PMI is also temporary and removable, not a permanent tax on your mortgage the way it sometimes gets described.
Where this actually depends on your specific numbers: if your credit is strong, PMI might run you $50 to $100 a month, a cheap admission price to start building equity sooner rather than later. If your credit is in the 620s, that same coverage could cost $300+ a month, and spending six months to a year improving your score before you buy might save you more than waiting to hit 20% down would. There’s no single right answer here, it depends on where your credit actually sits, which is exactly why the blanket “always avoid PMI” advice doesn’t hold up the same way for every buyer.
How PMI Actually Goes Away
This is the part that trips people up, because there are two different thresholds involved and they don’t work the same way.
Automatic termination happens by federal law, the Homeowners Protection Act, a law from the late 1990s that sets these rules for conventional loans. Your lender is required to automatically cancel PMI once your loan balance hits 78% of the home’s original value, as long as you’re current on your payments. You don’t have to ask, it’s supposed to happen on its own.
Borrower-requested cancellation can happen earlier, at 80% loan-to-value (LTV, the percentage of the home’s value you still owe on your mortgage), if you request it and you’re current on payments with no late payments in the past year. Your lender may require a new appraisal at your own expense to confirm the home hasn’t lost value since purchase.
There’s a third path worth knowing: if your home’s value has jumped, either from a hot local market or real renovations, you may be able to request removal earlier than your amortization schedule alone would get you there, based on a fresh appraisal showing you’re already at 20% equity. Rules and waiting periods vary by lender, so ask directly rather than assuming.
And since removal is based on your loan balance against the original value, extra principal payments genuinely speed this up. If you’ve got a good month with overtime or a side job payout, throwing part of it at principal pulls your PMI removal date forward. Run your numbers through the mortgage calculator to see where your natural 78% mark lands, then compare that against what a few extra payments a year would do to that timeline.
If You Went FHA Instead, Completely Different Rules Apply
FHA loans don’t use PMI, they use MIP (mortgage insurance premium), and it plays by a different set of rules entirely. FHA charges a 1.75% upfront premium (usually rolled into the loan) plus an annual premium of 0.55% for most borrowers putting down the standard 3.5% (0.50% if you put down 5% or more). Unlike PMI, that rate doesn’t change based on your credit score, which can actually make FHA the cheaper mortgage insurance option if your credit is still recovering.
Here’s the trap: if you put down less than 10% on an FHA loan, MIP stays for the entire life of the loan, no matter how much equity you build. Hit 50% equity through years of payments or a rising market, and you’d still owe it every month. The only way out is refinancing into a conventional loan once you have enough equity, which means paying closing costs again. Put down 10% or more on the FHA loan instead, and MIP cancels automatically after 11 years regardless of your loan balance at that point. The full head-to-head on which loan type actually costs less for your situation lives in FHA vs. Conventional Loans.
The New Tax Wrinkle for 2026
Here’s something genuinely new worth knowing: PMI became tax-deductible again starting with the 2026 tax year (the return you’ll file in 2027), after the deduction had been dead since 2021. Under the law that revived it, PMI and FHA MIP now count as deductible mortgage interest, subject to the same $750,000 loan balance cap as regular mortgage interest.
Before you count on this, two things narrow who actually benefits. First, you have to itemize your deductions instead of taking the standard deduction, which for 2026 is $15,750 for single filers and $31,500 for married couples filing jointly, high enough that a lot of homeowners won’t clear it just from PMI and mortgage interest combined. Second, there’s an income phase-out: the deduction starts shrinking above $50,000 adjusted gross income for single filers ($100,000 married filing jointly) and disappears entirely above $54,500 single ($109,000 married). For a lot of working households, that phase-out lands right in the range where the deduction either shrinks to nothing or never mattered in the first place. Worth knowing the rule exists, worth checking your own numbers before assuming it changes your math.
The Piggyback Option Most People Never Hear About
There’s a way to avoid PMI without a full 20% down payment: an 80-10-10 loan. You put 10% down, take a first mortgage for 80% of the price, and a second loan (often a HELOC or fixed second mortgage) for the remaining 10%. Since your first mortgage sits at 80% LTV, no PMI applies to it at all. The catch is that second loan carries its own interest rate, often higher and sometimes adjustable, and the combined cost of that second loan’s interest can end up rivaling or exceeding what PMI would have cost outright. It’s a real option, just one that needs its own math before assuming it’s automatically cheaper, run your actual numbers through the piggyback loan calculator before deciding.
If You’re a Veteran, None of This Applies to You
Worth mentioning directly: eligible veterans and service members using a VA loan skip this entire calculation. No PMI, at any down payment level, full stop. If that’s you, VA Loan Benefits covers what the program actually offers and where its own limits are.
The Short of It
PMI isn’t the enemy the “just save 20%” advice makes it out to be, and it isn’t a free pass either. What it actually costs you depends heavily on your credit score, it goes away automatically once you hit 78% loan-to-value, and you have real levers, extra payments, a reappraisal, borrower-requested cancellation, to pull that date forward instead of just waiting it out. Run your specific numbers before deciding to delay a purchase just to dodge it.
Frequently Asked Questions
Yes. You can request borrower-initiated cancellation at 80% loan-to-value if you’re current on payments, make extra principal payments to reach the 78% automatic cancellation threshold faster, or request a new appraisal if your home’s value has risen enough to already put you at 20% equity.
Starting with the 2026 tax year, yes, PMI and FHA MIP are treated as deductible mortgage interest. But you have to itemize instead of taking the standard deduction, and the deduction phases out and disappears entirely above $54,500 in adjusted gross income for single filers ($109,000 married filing jointly), so it doesn’t help everyone.
PMI applies to conventional loans and cancels automatically at 78% loan-to-value regardless of your down payment. FHA’s MIP charges the same rate no matter your credit score, but if you put down less than 10%, it lasts for the entire life of the loan. Put down 10% or more on an FHA loan and MIP cancels automatically after 11 years instead.
Yes. On the same $300,000 loan, a borrower with a 760+ credit score might pay around $115 a month in PMI, while a borrower with a 620-639 score can pay roughly $375 a month for identical coverage. Credit score usually affects PMI cost more than down payment size does.
With lender-paid PMI (LPMI), the lender covers the PMI cost but bakes it into a permanently higher interest rate instead of a separate monthly line item. Unlike standard PMI, it doesn’t automatically cancel once you hit 20% equity, since it’s part of your rate, not a fee. The only way out is refinancing.
One option is an 80-10-10 piggyback loan: 10% down, an 80% first mortgage with no PMI since it’s at 80% LTV, and a 10% second loan to cover the rest. The second loan carries its own rate, often higher, so the combined cost needs its own comparison against what PMI would have cost. Eligible veterans can also skip PMI entirely through a VA loan, regardless of down payment.
Sources
- https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/
- https://www.hud.gov/program_offices/housing/sfh/ins/203-b
- https://www.irs.gov/newsroom (for the 2026 PMI deduction change under the One Big Beautiful Bill Act, Section 70108)
- https://www.consumerfinance.gov/ask-cfpb/what-is-the-homeowners-protection-act-en-142/