PMI

What Is PMI?

PMI is required on conventional-loans when your down payment is less than 20% — meaning your LTV is above 80%. It typically costs $30–$70 per month per $100,000 borrowed, or 0.3–1.5% annually, depending on your credit score and LTV. You can request removal once you hit 80% LTV; it drops automatically at 78%. FHA uses MIP instead — different rules, often for the life of the loan. Factor PMI into your cash-flow when you're under 20% down.

PMI (private mortgage insurance) is coverage that protects the lender when you put less than 20% down — you pay the premium until your LTV drops to 80% or below.

At a Glance

What it is: Insurance that protects the lender when LTV > 80%; you pay the premium
Cost: $30–$70/month per $100K borrowed, or 0.3–1.5% annually
When required: Down payment < 20% on conventional-loan
Removal: Request at 80% LTV; automatic at 78%
vs MIP: FHA has MIP, not PMI; MIP often can't be removed if you put < 10% down

Formula

PMI ≈ 0.3–1.5% of loan balance annually (varies by LTV and credit)

How It Works

When you borrow more than 80% of a property's value, the lender is taking extra risk. If you default, they might not recover the full loan amount from a foreclosure sale. PMI covers that gap. You pay for it.

The cost. Usually $30–$70 per month per $100,000 borrowed. On a $300,000 loan, that's $90–$210/month. Or think of it as 0.3–1.5% of the loan balance annually. Your credit score and LTV drive the rate — better credit, lower PMI. Some lenders let you pay PMI upfront at closing instead of monthly; that can be cheaper if you have the cash.

When it applies. Only on conventional-loans. FHA uses MIP (Mortgage Insurance Premium) — different product, different rules. VA and USDA don't have PMI. So if you're doing a conventional with 10% down, you're paying PMI.

How to get rid of it. Two paths. Request removal when your loan balance hits 80% of the original purchase price (or appraised value at origination). You'll need to show the servicer you've paid down enough. Or, if the property has appreciated, get a new appraisal. If the current value puts you at 80% LTV or below, you can request removal. The servicer may charge for the appraisal. Federal law requires automatic cancellation when you hit 78% LTV based on the original amortization schedule — but that can take years. Don't wait. Request at 80%.

Real-World Example

Nina: $320,000 purchase, 10% down.

She buys a $320,000 house with 10% down — $32,000. Loan: $288,000. LTV: 90%. Her credit score is 720. PMI: $135/month (about 0.56% annually). Her PITI + PMI: $2,340. She pays an extra $200/month toward principal. In 4 years she's at 80% LTV. She writes the servicer, requests removal. They ask for an appraisal — $350. The appraisal comes in at $335,000. Her balance: $268,000. LTV: 80%. PMI removed. Her payment drops $135. She saves $1,620/year.

Carlos: Same loan, waits for automatic removal.

He doesn't make extra principal payments. He doesn't request removal. The automatic cancellation at 78% LTV kicks in at year 9 based on the original amortization. He pays $135/month for 9 years instead of 4. That's $8,100 in extra PMI. Requesting at 80% would've saved him thousands.

Pros & Cons

Advantages

Lets you buy with less than 20% down — access to ownership without a huge down payment
Removable — unlike FHA MIP, which can last the life of the loan
Pay extra principal or benefit from appreciation to reach 80% LTV faster
Some lenders offer lender-paid PMI (higher rate, no separate PMI payment) — compare options

Drawbacks

Adds to your monthly payment — $90–$210 on a $300K loan is real money
Doesn't protect you — it protects the lender; you get no benefit from the insurance
Delays cash-flow improvement on rentals — every dollar to PMI is a dollar not in your pocket
Appraisal cost to remove — servicers may require you to pay for a new appraisal to prove 80% LTV

Watch Out

Request at 80%: Don't wait for 78% automatic. You could save 1–2 years of payments.
Appreciation path: If your home appreciated, a new appraisal might get you to 80% LTV sooner. Check the math — appraisal fee vs PMI savings.
Payment history: Servicers typically want 12 months of on-time payments before approving removal. No late payments.
Second liens: If you have a HELOC or second mortgage, that counts. Your combined LTV must be 80% or below.
Investment property: PMI on investment loans is less common — most investors put 20%+ down. But if you're under 20%, factor it in.

Ask an Investor

The Takeaway

PMI is the price of buying with less than 20% down on a conventional-loan. It runs 0.3–1.5% of the loan annually. The move: pay extra principal or use appreciation to hit 80% LTV, then request removal. Don't wait for the automatic 78% — that can cost you years of unnecessary payments. For cash-flow analysis on rentals, include PMI when you're under 20% down.