What Is Private Mortgage Insurance (PMI)?

If you’re buying a home with less than 20% down, you’ll likely hear about Private Mortgage Insurance, commonly called PMI.

Here’s what it is and how it works.

What Is PMI?

Private Mortgage Insurance is a type of insurance that protects the lender, not the buyer.

It is typically required when you put down less than 20% on a conventional loan.

If the borrower stops making payments, PMI helps cover the lender’s financial risk.

How Much Does PMI Cost?

PMI usually costs between:

• 0.3% to 1.5% of the original loan amount per year

The exact amount depends on:

• Credit score

• Down payment size

• Loan amount

• Loan type

For example, on a $350,000 loan, PMI might range from $1,050 to $5,250 per year, divided into monthly payments.

How Is PMI Paid?

PMI is most commonly:

• Added to your monthly mortgage payment

In some cases, buyers may choose:

• Upfront PMI (paid at closing)

• Lender-paid PMI (built into a slightly higher interest rate)

Can PMI Be Removed?

Yes.

On conventional loans, PMI can usually be removed when:

• You reach 20% equity in the home

• Your loan balance drops to 80% of the original value

• Or your home appreciates enough to qualify based on a new appraisal

At 78% loan-to-value, lenders are generally required to remove PMI automatically if payments are current.

Is PMI Always a Bad Thing?

Not necessarily.

PMI allows buyers to:

• Purchase a home sooner

• Avoid waiting years to save 20%

• Start building equity earlier

For many buyers, paying PMI temporarily is worth entering the market sooner.

Final Thoughts

Private Mortgage Insurance is simply a tool that helps buyers purchase a home with a smaller down payment. While it adds to your monthly cost, it can open the door to homeownership sooner than expected.