Understanding PMI (and How to Get Rid of It Sooner)

If you’re putting less than 20% down on a conventional loan, you’ll likely see PMI (private mortgage insurance) on your estimate. It’s one of those line items that feels mysterious until someone explains it plainly—so let’s do that.

• PMI protects the lender, not you. It’s there because loans with smaller down payments are riskier for banks.
• You pay it monthly (most common), as a one-time upfront premium, or the lender can build it into your interest rate (called lender-paid PMI).
• PMI pricing depends on your credit score, down payment, loan type, and occupancy.
• Good news: On most conventional loans, PMI doesn’t last forever.

Ways to Set Up PMI (Pick What Fits)

1. Monthly PMI – Most common; shows up as a line item in your payment.
2. Single-Premium PMI – One upfront fee (sometimes paid by the seller with an agreed credit), no monthly PMI. Great if you have closing cost help.
3. Split-Premium PMI – Smaller upfront cost + smaller monthly amount.
4. Lender-Paid PMI (LPMI) – No PMI line item, but a higher interest rate. Often lowers your upfront costs but can cost more over time.

Tip: If you expect to refinance or sell within a few years, a structure with lower upfront cost may be worth it. If you plan to hold long-term, compare total cost carefully.

How to Get Rid of PMI Faster (Conventional Loans)

You can remove PMI once you have at least 20% equity (your loan is at 80% loan-to-value).

Four realistic paths to get there:

• Regular amortization: Simply make your payments until your balance drops to 82% of the home’s original purchase price and the PMI will be removed automatically. If you want to get it off right at 80% you will need to call the mortgage company to request it be removed.
• Extra principal payments: Target your principal—round up your payment or add a fixed extra each month. Even $150–$300/month can move the needle.
• Appreciation + appraisal: If market values climb or you’ve done value-add improvements, you can request PMI removal based on a new appraisal showing 20% equity.
• Large lump-sum payment: If you receive a bonus or sale proceeds, you can apply a one-time principal payment to cross the 80% threshold so long as your lender allows a loan recast.

What servicers usually require when you ask to remove PMI:

• A history of on-time payments.
• No second liens (like a HELOC) that would push your total loan-to-value over 80%.
• Evidence your property value hasn’t declined (often via appraisal, paid by you).
• Each servicer has its own written policy—we’ll get those details before you order an appraisal.

FHA Loans vs. Conventional

• Conventional = PMI and it can be removed as above.
• FHA = MIP (mortgage insurance premium). Removal rules are different:
  • With smaller down payments, MIP can last for the life of the loan.
  • Many FHA buyers eliminate MIP by refinancing into a conventional loan once they have 20% equity and solid credit.

If you’re shopping both FHA and conventional, your lender will help you compare total monthly cost now and your path to removing mortgage insurance later.

Is It Ever Worth Taking PMI?

Absolutely—PMI is a tool, not a penalty. In our market, waiting to save a full 20% can mean higher prices and rates later. For many buyers, getting into the right home sooner (and starting principal paydown + potential appreciation) pencils out better than waiting.