Private Mortgage Insurance (PMI) Explained

What is PMI and why is it required?

PMI is insurance that lenders generally require on conventional loans when the down payment is below 20 percent of the home's value. It protects the lender against loss if the borrower defaults, and it allows lenders to offer financing to buyers with smaller down payments than they might otherwise approve. PMI does not protect the borrower and does not pay off the loan in the event of death or disability, which is a common misunderstanding.

How is PMI typically priced?

PMI cost generally depends on factors such as credit score, loan-to-value ratio, loan type, and coverage amount, and it is set by the mortgage insurance company underwriting the policy, not by Manny or the lender directly. It is usually paid as part of the monthly mortgage payment, though some lenders offer single-premium or lender-paid options. Because pricing varies by borrower profile and market conditions, a loan officer can provide an estimate specific to a given scenario rather than a general figure.

How is PMI different from FHA mortgage insurance?

How can PMI be removed?

• Automatic termination often occurs once the loan balance is scheduled to reach 78% of the original home value, based on the amortization schedule
• Borrower-requested cancellation may be possible once the balance reaches 80% of original value, subject to a good payment history and lender requirements
• A new appraisal showing increased home value may support an earlier removal request in some cases, subject to lender rules
• Refinancing into a new loan with at least 20% equity can eliminate PMI, though closing costs and rate changes should be weighed

Removal rules and timelines vary by lender and loan investor. Contact your loan servicer directly to confirm the process and required documentation for your loan.

Are there ways to avoid PMI from the start?

Putting down 20% or more on a conventional loan avoids PMI entirely. Some lenders also offer piggyback second-lien structures or lender-paid mortgage insurance arrangements that fold the cost into the interest rate instead of a separate monthly charge, which can make sense for some borrowers but should be compared carefully against standard PMI over the expected time in the home.