PMI with a low credit score: why it costs more and the payment-history test to cancel
A 620–660 score can double or triple the PMI rate, and the HPA lets you cancel only if the last 24 months show no 60-day late and the last 12 none at 30 days — the condition most likely to fail on a rebuilding borrower.
Private mortgage insurance is priced off the same score that made the loan hard to get. The Homeowners Protection Act sets when the insurer must let go, and its fine print assumes a borrower who never misses a payment — which is precisely the assumption a bad-credit buyer has to earn back.
The price of insurance at a low score
Mortgage insurers publish rate cards by score band and loan-to-value ratio. At 95–97% LTV, a borrower in the 620–639 band typically pays a monthly premium several times the rate charged at 760 and above; some insurers decline coverage below 620 on certain products, which is one reason conventional loans effectively stop at that score. On a $300,000 loan, the difference between the bands can exceed $200 a month. This is why, below roughly 680, FHA mortgage insurance — priced almost flat across scores — frequently produces a lower payment despite its upfront premium. The HPA does not regulate these prices; it regulates the exit.
The cancellation request and the history test
You may ask in writing to cancel PMI once the balance reaches 80% of the original value under the amortization schedule, or sooner through extra payments. The servicer may grant it only if you are current, have a good payment history — no payment 30 days late in the previous 12 months and none 60 days late in the previous 24 — hold no junior lien, and, if the lender asks, an appraisal shows the value has not fallen. For a borrower whose first year of homeownership included a 30-day late while finances were still fragile, that single lapse pushes the earliest cancellation date out by a year. Automatic termination at 78% of original value requires only that you are current on that date; if you are not, it happens when you become current. At the midpoint of the term, PMI ends regardless of everything else, provided you are current.
The high-risk carve-out to ask about
The Act allows loans classified as “high risk” — by Fannie Mae or Freddie Mac for conforming loans, by the lender for others — to skip borrower-requested cancellation, while still terminating at 77% LTV and at midpoint. Lenders rarely invoke it, but a subprime file is the only kind that could be labeled this way. Ask, in writing, whether your loan is designated high risk under the HPA; the answer should appear in the initial PMI disclosure given at closing, along with the dates you can expect cancellation and termination.
FHA insurance is outside the Act
If the path of least resistance was FHA, none of this applies. FHA’s annual premium lasts for the life of the loan when the down payment was under 10%, and 11 years otherwise, with no cancellation request available. The exit is a refinance into a conventional loan once the score and equity allow, or a PMI removal strategy on the new loan. The general cancellation rules are on the HPA page.
What to check
- Get the insurer’s premium for your score band in writing and compare with FHA’s flat-rate MIP before choosing conventional below about 680.
- Protect the 12/24-month payment history from day one — one 30-day late delays the earliest PMI cancellation by a year.
- Read the initial PMI disclosure for the projected cancellation and termination dates and any high-risk designation.
- Remember that FHA MIP has no HPA exit: plan a refinance once your score recovers and equity reaches 20%.
Frequently asked questions
Can the servicer refuse to cancel PMI at 80% because my credit is still bad?
Not because of the score. The HPA conditions are payment history on this loan, current status, no subordinate liens and, at the lender’s option, an appraisal confirming value. A low score with a clean 24-month history meets the test. A recent 60-day late does not, and the servicer must tell you in writing why a request was denied.
Is lender-paid PMI a way around the payment-history test?
It avoids the test by removing the separate premium, but the cost is built into a higher rate for the life of the loan and cannot be cancelled. For a borrower who expects to refinance within a few years anyway, it sometimes makes sense; for someone planning to hold the loan, borrower-paid PMI with a cancellation path usually costs less overall. The lender must disclose this difference in writing.
The rule in full: Homeowners Protection Act (PMI cancellation). The borrower profile: Buyers with bad credit. Related guides: Credit score needed to buy a house: minimums by loan type, and what it costs to be average · FHA vs conventional for a first-time buyer: which loan wins, and when · PMI removal: the 80% request, the 78% automatic cancellation, and the appraisal route · PMI for first-time buyers: what it costs and how to get rid of it.
Other federal rules for buyers with bad credit
TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation
HPA / PMI for other borrowers
First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing