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What is PMI and how do I avoid it?
Short Answer
PMI, or private mortgage insurance, is a monthly charge on a conventional loan when your down payment is less than 20 percent. It protects the lender, not you, and it adds to your payment until your equity reaches the point where the lender drops it. You can avoid it with a larger down payment, a loan type that does not require it, or a plan to build equity faster.
General information, not legal or financial advice.
What PMI is
Private mortgage insurance is a monthly premium on a conventional loan when your down payment is under 20 percent. It compensates the lender if you stop making payments.
It is not protection for you, which is why it can feel like a frustrating extra cost on top of your mortgage.
How it is charged
PMI is usually added to your monthly payment, and the amount depends on your down payment, your loan amount, and your credit.
A larger down payment or a stronger credit profile typically lowers the premium.
How it goes away
On most conventional loans, PMI is removed automatically once your equity reaches 22 percent of the original value, and you can usually request removal at 20 percent.
Your loan servicer should tell you when you qualify, and tracking it can save you money over time.
Ways to avoid it
The most direct way to avoid PMI is a down payment of 20 percent or more. Some lenders offer alternative structures, like a slightly higher rate in exchange for no PMI.
You can also plan to reach 20 percent equity sooner with extra payments, then request removal.
Alternatives to think about
Other loan types handle mortgage insurance differently. FHA loans charge their own mortgage insurance premium, and VA loans for eligible borrowers do not require PMI at all.
The right answer depends on your program, your down payment, and how long you plan to stay, so it is worth comparing with a lender.
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