Private Mortgage Insurance
Private Mortgage Insurance (PMI) is insurance on conventional loans required when the buyer's down payment is less than 20%. PMI protects the lender—not the buyer—if the borrower defaults. It costs 0.5–1.5% of the loan amount annually and is added to your monthly mortgage payment until you reach 20% equity.
PMI is provided by private insurance companies (not the government), which is what makes it 'private.' This distinguishes it from FHA mortgage insurance premium (MIP), which is government-administered. The mechanics are similar—you pay monthly premiums, and the insurer covers part of the lender's losses if you default—but the rules for cancellation differ significantly.
PMI rates vary based on your credit score and LTV. A borrower with a 760 score and 15% down might pay 0.34% annually ($99/month on a $350,000 loan). A 680-score borrower with 5% down might pay 1.30% ($379/month). These differences make credit score improvement before purchasing highly valuable.
The Homeowners Protection Act requires lenders to automatically cancel PMI on conventional loans when the balance reaches 78% of the original purchase price, provided you're current on payments. You can request cancellation earlier at 80% LTV. You can also request cancellation based on increased value—if your home has appreciated significantly, a new appraisal might show current LTV below 80%.
Key Takeaway
Private Mortgage Insurance (PMI) is insurance on conventional loans required when the buyer's down payment is less than 20%. PMI protects the lender—not the buyer—if the borrower defaults. It costs 0.5–1.5% of the loan amount annually and is added to your monthly mortgage payment until you reach 20% equity.
Related Terms
Frequently Asked Questions
PMI is provided by private companies and required on conventional loans with less than 20% down. FHA MIP is government-administered and required on all FHA loans. The key difference: conventional PMI can be canceled; FHA MIP on loans made after June 2013 lasts the life of the loan if you put less than 10% down.
If the gift brings your down payment to 20% or more, yes—you'd avoid PMI. Gifts must be documented with a gift letter confirming no repayment is expected. Check with your lender on gift sourcing requirements.
Submit a written request to your loan servicer once you believe your balance is at 80% LTV. The servicer may require an appraisal (at your cost, typically $300–$600) to verify the current value if you're relying on appreciation.
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