PMI for first-time buyers: what it costs and how to get rid of it

PMI is the price of buying before you have 20% down. It is not permanent, it is not a scam, and it is frequently cheaper than waiting — but you should know exactly what you are paying and when it ends.

What PMI is

Private mortgage insurance protects the lender, not you, if you default on a conventional loan with less than 20% equity. The premium depends on your loan-to-value ratio, credit score, loan type and coverage level. Annual rates range from roughly 0.2% of the loan for a 760+ score with 15% down to 1.5% or more for a 640 score with 3% down. On a $300,000 loan, that is $50 to $375 a month.

Four ways to pay it

Borrower-paid monthly: added to the payment; cancellable. The default.
Single premium: paid once at closing (or by the seller); not refundable if you sell or refinance early.
Split premium: part upfront, lower monthly.
Lender-paid: the lender covers it in exchange for a higher rate for the life of the loan; cannot be cancelled — avoid unless you plan to refinance within a few years.

How it ends

Under the federal Homeowners Protection Act, you may request cancellation in writing when the balance reaches 80% of the original value (purchase price or appraisal at origination, whichever was lower), if you are current with a good payment history. The servicer must cancel automatically at 78% of original value, and at the midpoint of the loan term regardless of LTV. Many servicers also cancel based on a new appraisal showing 20% to 25% equity from appreciation, typically after two to five years of payments — a policy, not a federal right. See PMI removal for the step-by-step.

PMI vs FHA mortgage insurance

FHA loans carry a 1.75% upfront premium plus annual MIP that lasts the life of the loan with less than 10% down. Conventional PMI has no upfront charge and goes away. For scores above roughly 700, conventional PMI is almost always cheaper over time; below 660, FHA often wins. Run both with the same lender.

Frequently asked questions

Is PMI tax deductible?

The federal deduction for mortgage insurance premiums expired after 2021 and has not been permanently restored as of this writing; check current IRS guidance before assuming a deduction.

Can I avoid PMI with 10% down?

Through a “piggyback” 80-10-10 structure — an 80% first mortgage, a 10% second mortgage and 10% down — PMI is avoided but the second loan carries a higher rate. Some lenders and credit unions also offer no-PMI loans with a rate premium. Compare total monthly cost, not just the PMI line.

Does PMI count toward my debt-to-income ratio?

Yes. It is part of the housing payment used to qualify you, which is one reason a slightly larger down payment sometimes increases the price you can afford.