What Is PMI? Private Mortgage Insurance Explained

Updated October 10, 2026

By Stacy Schlesinger | President, Platinum Lending Solutions | NMLS #252075

One of the most common misconceptions I hear from homebuyers is that you need a 20% down payment to purchase a home.

The truth is that many mortgage programs allow qualified buyers to purchase with considerably less.

However, when you make a smaller down payment, your loan may require private mortgage insurance (PMI).

While PMI adds to the cost of your mortgage, it can also make it possible to purchase a home without waiting until you’ve saved a full 20% down payment.

Understanding how PMI works, what it costs, and when it can be removed will help you make a more informed financing decision.

What Is Private Mortgage Insurance (PMI)?

Private mortgage insurance is insurance that protects a mortgage lender against certain financial losses if a borrower defaults on their loan.

PMI is commonly required on conventional mortgages when the buyer makes a down payment of less than 20% of the purchase price.

It’s important to understand that PMI protects the lender, not the homeowner.

It doesn’t replace homeowners insurance, protect your personal belongings, or eliminate your obligation to repay your mortgage.

What PMI does provide is an opportunity for lenders to offer financing to eligible borrowers who have smaller down payments.

Without mortgage insurance, some buyers might need to save considerably more money before qualifying for a conventional mortgage.

When Is PMI Required?

For many conventional mortgage programs, PMI is required when the loan amount exceeds 80% of the property’s value used for underwriting purposes.

This relationship between the loan amount and property value is called the loan-to-value ratio (LTV).

Generally:

• 20% or more down: Conventional loans typically don’t require borrower-paid PMI.
• Less than 20% down: PMI is commonly required, depending on the loan program and financing structure.
• Refinancing: PMI may also apply if you’re refinancing a conventional mortgage without sufficient equity.

Some mortgage programs offer alternative financing arrangements, so these are general guidelines rather than universal requirements.

For more information about conventional financing, visit our conventional mortgage loan guide.

How Much Does PMI Cost?

There isn’t one standard PMI premium that applies to every borrower.

The cost depends on several factors, including:

• Down payment: The amount you contribute toward the purchase affects your loan-to-value ratio.
• Credit profile: Credit scores and other risk characteristics can influence pricing.
• Loan amount and term: The structure of your financing may affect the premium.
• Mortgage insurance arrangement: Monthly, upfront, and other available premium structures can have different costs.

For most borrowers, PMI is included as part of the monthly mortgage payment.

However, other payment arrangements may be available.

The actual premium should be reviewed as part of your mortgage proposal rather than estimated from a general percentage found online.

How Is PMI Paid?

Mortgage insurance can be structured in several ways.

Monthly borrower-paid PMI: The premium is typically collected with your regular monthly mortgage payment.

Single-premium PMI: Some programs allow an upfront premium instead of an ongoing monthly charge. The initial cost, available funds, and potential refund provisions should be evaluated carefully.

Lender-paid mortgage insurance: Certain financing arrangements incorporate the cost of mortgage insurance into the interest rate or other loan pricing rather than showing a separate monthly PMI payment.

Lender-paid mortgage insurance doesn’t necessarily mean the coverage is free.

For that reason, I recommend comparing the complete loan terms and costs rather than focusing only on whether a separate PMI charge appears in the payment.

When Can You Remove PMI From a Conventional Mortgage?

One of the advantages of many conventional mortgage programs is that PMI doesn’t necessarily remain in place for the entire loan term.

For many covered conventional mortgages on principal residences, federal rules provide important cancellation protections.

Requesting PMI Cancellation at 80%

You may generally request cancellation when your loan’s principal balance reaches 80% of the home’s original value, subject to applicable requirements.

Your servicer may require:

• A written cancellation request
• A satisfactory payment history
• Confirmation that your mortgage payments are current
• Evidence that the property’s value hasn’t declined below its original value
• Confirmation that there are no junior liens against the property

For these rules, the home’s original value generally refers to the lower of the purchase price or appraised value at the time of purchase.

Making additional principal payments may allow you to request cancellation earlier if the applicable conditions are satisfied.

Automatic PMI Termination at 78%

For many covered loans, the servicer must automatically terminate borrower-paid PMI when the principal balance is scheduled to reach 78% of the property’s original value, provided the loan is current.

Additional rules, including termination at the midpoint of the amortization schedule, may also apply.

These protections have exceptions, and the requirements for investment properties, certain higher-risk loans, and other mortgage arrangements may differ.

Your mortgage servicer can explain the provisions applicable to your specific loan.

For more details, see the Consumer Financial Protection Bureau’s PMI cancellation guidance.

Can Rising Home Values Help You Remove PMI Earlier?

Potentially, but an increase in your home’s market value doesn’t automatically eliminate PMI.

Certain mortgage investors and servicers offer cancellation options based on a property’s current value rather than solely on its original value.

Those options may require a new appraisal or other acceptable valuation, a minimum period of ownership, satisfactory payment history, and compliance with applicable loan-to-value requirements.

For example, if your home has increased in value, you may want to contact your servicer to determine whether a current-value cancellation option is available.

However, don’t assume that having 20% equity based on today’s estimated market value automatically qualifies you for PMI removal.

The rules depend on your loan, its investor, and the applicable servicing requirements.

Is PMI the Same as FHA Mortgage Insurance?

No. This is an important distinction.

Conventional loans may require private mortgage insurance, while FHA loans generally require mortgage insurance premiums (MIP).

FHA mortgage insurance commonly includes both an upfront premium and an annual premium collected in monthly installments.

The rules for how long FHA mortgage insurance remains in place are different from conventional PMI cancellation rules.

For many FHA loans with case numbers assigned on or after June 3, 2013, the annual MIP duration is generally:

• 11 years: When the original loan-to-value ratio is 90% or less.
• The mortgage term: When the original loan-to-value ratio is greater than 90%.

Older FHA loans and certain other circumstances may follow different rules.

Reaching 20% equity in your home doesn’t automatically eliminate FHA mortgage insurance.

Some homeowners consider refinancing into a conventional mortgage when they have sufficient equity, but refinancing involves new qualification requirements, interest rates, and closing costs.

Removing mortgage insurance alone doesn’t necessarily mean refinancing will save money.

You can learn more in our FHA mortgage loan guide.

Should You Wait Until You Have 20% Down?

Not necessarily.

Saving a larger down payment can reduce your loan amount and may eliminate the need for PMI on a conventional mortgage.

However, waiting also means delaying your purchase while continuing to save.

For example, a buyer considering a home in Milwaukie, Oregon, might compare purchasing with a smaller down payment against waiting until they’ve saved more.

The decision should involve more than the PMI premium. Available savings, monthly payments, closing costs, and the buyer’s other financial priorities all matter.

The same applies to someone purchasing in Camas, Washington. Property taxes, homeowners insurance, and any HOA dues will affect the total housing payment regardless of the down payment strategy.

In some situations, preserving savings for unexpected expenses may be more important than using nearly all available cash to avoid PMI.

In other cases, making a larger down payment may be the more appropriate financial decision.

There isn’t one answer that works for everyone.

The important thing is to compare realistic financing options based on your individual circumstances.

For additional guidance, see our article on how much house you can afford.

Frequently Asked Questions

Do all first-time homebuyers have to pay PMI?

No. PMI generally depends on the mortgage program and financing structure, not whether someone has previously owned a home. Many conventional loans require PMI with less than 20% down, but other mortgage programs have different insurance or funding-fee requirements.

Can I buy a house with 5% down and pay PMI?

Potentially, yes. Many conventional mortgage programs allow eligible buyers to purchase with 5% down or less. If PMI applies, its cost depends on the borrower’s qualifications and the loan structure.

Does PMI protect me if I lose my job?

No. PMI protects the lender against specified losses associated with loan default. It is not unemployment insurance, homeowners insurance, or a substitute for an emergency savings fund.

Does PMI automatically disappear after five years?

Not necessarily. Conventional PMI termination generally depends on loan balance, original property value, payment history, and applicable cancellation requirements rather than a universal five-year period.

Can I remove PMI without refinancing?

Yes, many eligible conventional borrowers can request PMI cancellation through their mortgage servicer without refinancing. The timing and requirements depend on the loan and applicable servicing guidelines.

Do VA loans require PMI?

VA-backed mortgages do not require monthly PMI. However, many eligible VA borrowers pay a funding fee unless an exemption applies. That fee is different from conventional PMI.

The Bottom Line: PMI Isn’t Necessarily a Reason to Delay Buying

Private mortgage insurance is an additional mortgage expense, but it can also make homeownership accessible with a smaller down payment.

After more than 25 years in mortgage lending, I encourage buyers to look at the complete financing picture rather than treating PMI as something that should always be avoided.

In some situations, paying PMI while maintaining adequate savings may make sense. In others, a larger down payment or different financing structure may be more appropriate.

The goal is to understand the available options and choose an approach that fits your financial circumstances.

Have questions about PMI or your down payment options?

At Platinum Lending Solutions, we help homebuyers throughout Oregon and Washington compare available mortgage programs, understand mortgage insurance costs, and evaluate financing options.

I’m happy to help you review the numbers and understand your choices.

Ask Stacy Your Mortgage Question

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About the Author

Stacy Schlesinger is the President of Platinum Lending Solutions, an independent mortgage brokerage serving Oregon and Washington. With more than 25 years of mortgage lending experience, Stacy helps homebuyers evaluate financing options and navigate the mortgage process.

Stacy Schlesinger | NMLS #252075

Platinum Lending Solutions | Company NMLS #251560

Oregon License #ML-4475 | Washington License #WA CL-251560

Content reviewed October 10, 2026. This article is provided for general educational purposes and is not a commitment to lend. Loan eligibility, mortgage insurance requirements, rates, costs, and terms are subject to change and applicable underwriting requirements. All loans are subject to credit approval.