PMI cancellation for first-time buyers: 80%, 78%, and how DPA seconds change the math

The Homeowners Protection Act is the long-term reason a conventional 3%-down loan can beat FHA: borrower-paid PMI must end at 78% of original value and may be cancelled at 80% on request. A DPA second lien can block the request, and FHA insurance is not covered at all.

Mortgage insurance is the price of a small down payment, and for a first-time buyer it is often $100 to $250 a month. Whether and when that charge ends depends on which insurance you have — and on a detail about second liens that DPA users learn too late.

Conventional PMI: two dates and one request

On a single-family principal residence with borrower-paid PMI, the servicer must cancel automatically on the date the loan balance is scheduled to hit 78% of the original value — the lesser of the purchase price and the appraisal — provided you are current. You may request cancellation earlier, once the scheduled or actual balance reaches 80% of original value, with a good payment history (no 30-day late in the last year, no 60-day late in the last two) and, if the servicer asks, evidence that the value has not fallen. On a 3%-down loan with no extra payments that 80% point arrives after roughly nine to ten years; a 5%-down loan gets there a little sooner. Extra principal payments move the date forward, and the servicer must tell you at closing and annually what the cancellation terms are. Our PMI removal guide has the request letter.

Current value: the investor rules on top of HPA

HPA is a floor. Fannie Mae and Freddie Mac allow cancellation based on a new appraisal: generally at 75% of current value after two years, or 80% after five years, and at 80% at any time when improvements you paid for created the equity. A first-time buyer in a rising market can ask the servicer to order an appraisal at the borrower’s cost, typically a few hundred dollars, to cut PMI years early. HomeReady and Home Possible loans follow the same path; their lower PMI coverage reduces the premium but does not change the cancellation rules.

The subordinate-lien catch for DPA users

The Act lets the servicer condition a requested cancellation at 80% on a certification that the equity is not subject to a subordinate lien. A deferred or forgivable DPA second from your state HFA is exactly that. The automatic termination at 78% is unaffected, but the early request may be refused until the second is paid off or forgiven. Buyers with a five-year forgivable second should diary the forgiveness date and send the cancellation request right after it; buyers with a deferred second repaid at sale may simply have to wait for 78%.

What HPA does not cover

FHA mortgage insurance is a government program outside the Act. With less than 10% down on an FHA loan closed since mid-2013, the annual premium lasts the life of the loan; with 10% or more down it ends after 11 years. The only exits are a refinance into a conventional loan once you reach 80% loan-to-value, or paying the loan off. Lender-paid PMI on a conventional loan is also outside the cancellation rules: the premium is built into the rate and never drops, which the lender must disclose before you commit. For a buyer who expects to stay more than about seven years, this is the single largest hidden difference between the FHA and conventional quotes.

What to check

• Ask at closing for the PMI disclosure showing the scheduled 78% automatic termination date and the 80% request conditions.
• If you have a DPA second lien, note its forgiveness or payoff date; a requested cancellation at 80% may be refused until then.
• Track home value after two years — a borrower-paid appraisal can end PMI at 75% of current value under agency rules.
• Remember FHA annual premiums with under 10% down never cancel; plan a conventional refinance once you hold 20% equity.
• Decline lender-paid PMI unless you intend to sell or refinance within a few years; it cannot be cancelled.

Frequently asked questions

When does PMI end on a 3% down conventional loan?

Automatically when the amortization schedule brings the balance to 78% of the original value, which is roughly nine to ten years into a 30-year loan without extra payments. You may request cancellation at 80% of original value with a clean payment history, or sooner under Fannie Mae and Freddie Mac rules based on a new appraisal after two years. Prepaying principal shortens every one of these timelines.

Does my state down payment assistance loan stop me from cancelling PMI?

It can delay the early request. Servicers may require a certification of no subordinate liens before granting a requested cancellation at 80%, and a recorded DPA second is a subordinate lien. The automatic termination at 78% of original value still happens on schedule. Once the second is forgiven or repaid, submit the cancellation request with proof of the lien release.

The rule in full: Homeowners Protection Act (PMI cancellation). The borrower profile: First-time home buyers. Related guides: FHA vs conventional for a first-time buyer: which loan wins, and when · 3% down conventional loans: HomeReady, Home Possible and Conventional 97 · 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 first-time home buyers

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

Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing