What Is PMI and How Do I Get Rid of It?
The short answer
PMI, or private mortgage insurance, is a monthly cost most lenders add to a conventional loan when you put down less than 20%. It protects the lender, not you. The good news: on a conventional loan it does not last forever. You can usually ask to remove it once you reach 20% equity, and it generally drops off on its own at 22%.
Why PMI exists (and why it is not all bad)
A smaller down payment means more risk for the lender, and PMI is how they cover it. That sounds like a raw deal until you flip it around: PMI is the reason you can buy a home in Plano or Frisco without waiting years to save a full 20%. For many buyers, a few years of PMI beats a few more years of rent.
- Conventional loans: PMI applies when you put down less than 20%. The cost depends on your credit, down payment and loan details.
- FHA loans: these have their own mortgage insurance (MIP), with different rules. On many FHA loans it stays for the life of the loan unless you refinance.
- VA loans: no monthly mortgage insurance, which is one of the big perks for those who served.
How to get rid of PMI on a conventional loan
- Ask at 80%. Once your balance reaches 80% of the home's original value, you can request cancellation in writing. Lenders usually want a good payment history.
- Let it fall off at 78%. Under federal law, PMI generally ends automatically when you reach 78% of the original value on your normal payment schedule, as long as you are current.
- Pay it down faster. Extra principal payments get you to 80% sooner.
- Use your home's growth. If your home's value has risen, some lenders allow removal based on a new appraisal, often after you have owned the home for a set period.
- Refinance. If you now have 20% or more equity, a refinance may drop PMI, but run the numbers on closing costs first.
Frequently asked questions
Is PMI tax-deductible?
That depends on current tax law and your situation, so ask your tax professional.
Should I wait until I have 20% down?
Not necessarily. Compare what you would pay in PMI against what you would pay in rent and what home prices might do while you wait. That trade-off is personal, and we are happy to walk through it with you.
Curious what PMI would look like for you? See our guide to the minimum down payment in Texas, or call us at (469) 414-5554 and visit our Texas branch.
By Kelly Welton, Mortgage Broker (NMLS #314183), Mohave Mortgage Texas Branch. Mohave Mortgage NMLS #1830581 · Texas Branch NMLS #2690682 · Equal Housing Opportunity. General information only, not a commitment to lend or financial advice. Programs, rates and guidelines vary and change.
