What is PMI and how do I avoid it?

Question 1

Kathleen Militello · Accepted Answer

PMI, private mortgage insurance, protects the lender when your down payment is under 20%. You can avoid it with a 20% down payment or certain loan programs, and on conventional loans it can also be removed once you reach 20% equity. When you put less than 20% down on a conventional loan, the lender takes on more risk and requires PMI to cover their exposure. It is added to your monthly payment, so it raises the true cost of the loan until it finally comes off. The simplest way to avoid it is a 20% down payment, but there are other paths: some loan programs and lender-paid pricing options can reduce or eliminate it, so it is worth asking a good lender what applies to your situation before you default to paying it. If you do carry PMI on a conventional loan, you can request cancellation once your equity reaches 20%, and it generally falls off automatically at 22% equity. Track that milestone, because the lender will not always open the conversation for you. FHA loans have their own mortgage insurance rules that behave differently, so the details depend on the loan type. Kathleen, a Realtor® with eXp Realty, works with local lenders who will show these numbers clearly, right down to which scenario actually costs less over the time you plan to own. North Shore condos and starter homes often involve down payments under 20%, so PMI questions are common here. A lender who explains the trade-off plainly, in dollars, is part of making a smart move.

Question 2

How do I get PMI removed once I reach 20% equity?

Kathleen Militello · Accepted Answer

PMI, private mortgage insurance, protects the lender when your down payment is under 20%. You can avoid it with a 20% down payment or certain loan programs, and on conventional loans it can also be removed once you reach 20% equity. When you put less than 20% down on a conventional loan, the lender takes on more risk and requires PMI to cover their exposure. It is added to your monthly payment, so it raises the true cost of the loan until it finally comes off. The simplest way to avoid it is a 20% down payment, but there are other paths: some loan programs and lender-paid pricing options can reduce or eliminate it, so it is worth asking a good lender what applies to your situation before you default to paying it. If you do carry PMI on a conventional loan, you can request cancellation once your equity reaches 20%, and it generally falls off automatically at 22% equity. Track that milestone, because the lender will not always open the conversation for you. FHA loans have their own mortgage insurance rules that behave differently, so the details depend on the loan type. Kathleen, a Realtor® with eXp Realty, works with local lenders who will show these numbers clearly, right down to which scenario actually costs less over the time you plan to own. North Shore condos and starter homes often involve down payments under 20%, so PMI questions are common here. A lender who explains the trade-off plainly, in dollars, is part of making a smart move.

What is PMI and how do I avoid it?

Related questions

Ask your own version of this question.

Ready to make a smart move?