What Is PMI (Private Mortgage Insurance)?
In this article
"PMI, or private mortgage insurance, is insurance you may have to pay for when you get a conventional loan with less than 20% down. It protects the lender, not you, if you stop making payments. You can ask to cancel it once your loan balance is scheduled to reach 80% of your home's original value, and it generally ends on its own at 78%.
What is PMI?
The Consumer Financial Protection Bureau (CFPB) defines it on its PMI page (checked Sept. 27, 2026): ""Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price.""
Your lender arranges it, and private insurance companies provide it. The CFPB says PMI ""protects the lender—not you."" If you fall behind on payments, you can still lose your home through foreclosure.
So why would anyone pay for it? The CFPB says PMI can help you qualify for a loan you might not otherwise be able to get. The trade-off is that it raises the cost of your loan.
When do you have to pay PMI?
PMI comes with conventional loans when your down payment is under 20%. The CFPB says that when you pay 20% down, PMI is not required on a conventional loan, and you could also get a lower interest rate.
The CFPB notes that some lenders offer conventional loans with small down payments and no PMI, but you usually pay a higher interest rate for them. FHA and VA loans have their own mortgage insurance rules, which we cover below.
How much does PMI cost?
Fannie Mae's homebuyer page on PMI (checked Sept. 27, 2026) says PMI is figured as a percentage of your loan amount, and ""in 2022 it typically ranged from 0.58% to 1.86% annually."" That is a 2022 range, not today's quote. Your own premium will be on your Loan Estimate.
The CFPB explains three ways you might pay:
Monthly premium: the most common way. It is added to your mortgage payment and shown on page 1 of your Loan Estimate and Closing Disclosure, in the Projected Payments section.
One-time up-front premium: paid at closing and shown on page 2, in section B. If you move or refinance, you might not get a refund.
Both: an up-front premium plus a monthly one.
EXAMPLE ONLY: $400,000 new home, conventional loan. The PMI columns apply the low and high ends of Fannie Mae's typical 2022 range (0.58% to 1.86% a year) to each loan size. This is not a quote.
Down payment | Loan amount | PMI required? | PMI per month at 0.58% | PMI per month at 1.86% |
|---|---|---|---|---|
5% ($20,000) | $380,000 | Yes | $183.67 | $589.00 |
10% ($40,000) | $360,000 | Yes | $174.00 | $558.00 |
20% ($80,000) | $320,000 | No | $0 | $0 |
When can you remove PMI?
The CFPB's page on removing PMI (checked Sept. 27, 2026) explains the federal rules for single-family main homes with loans that closed on or after July 29, 1999:
Ask to cancel at 80%. You can ask your servicer to cancel PMI on the date your balance is scheduled to fall to 80% of your home's original value. That date should be on the PMI disclosure form you got with your loan.
Automatic end at 78%. Your servicer generally must end PMI on the date your balance is scheduled to reach 78%, as long as you are current on payments.
Halfway point. PMI must end the month after the midpoint of your loan's schedule, which is after 15 years on a 30-year loan, if you are current.
To cancel at 80%, the CFPB says you must ask in writing, have a good payment history, have no second mortgage or other junior lien, and show the home's value has not dropped below its original value, for example with an appraisal. Extra payments can get you to 80% sooner.
""Original value"" usually means the lower of the contract sales price or the appraised value when you bought. The CFPB also says Fannie Mae and Freddie Mac can set their own cancellation rules, but those cannot be less favorable to you. If your lender pays for the mortgage insurance, different rules apply.
EXAMPLE ONLY: $400,000 new home (contract price and appraisal both $400,000), 5% down, $380,000 30-year fixed loan at 7.03%, the Freddie Mac PMMS average as of Sept. 24, 2026. Regular payments of $2,535.81 in principal and interest, no extra payments.
Milestone | Balance target | When the schedule gets there |
|---|---|---|
You can ask to cancel PMI (80%) | $320,000 | Payment 130, about 10 years 10 months in |
PMI ends on its own (78%) | $312,000 | Payment 142, about 11 years 10 months in |
Halfway point rule | Not a balance target | After 15 years |
How is PMI different from FHA mortgage insurance?
The CFPB's removal page says FHA and VA loans have different requirements and tells those borrowers to contact their servicer.
Appendix 1.0 of HUD Handbook 4000.1 (version issued Aug. 12, 2026) sets FHA's upfront premium at 1.75% of the base loan amount. For loans longer than 15 years with a base amount of $726,200 or less, the annual premium is 0.50% at 95% loan-to-value or less, and 0.55% above 95%. At 90% loan-to-value or less, it lasts 11 years. Above 90%, it lasts for the whole loan.
PMI on a conventional loan | FHA mortgage insurance | |
|---|---|---|
Who provides it | Private insurers, arranged by your lender | FHA, part of HUD |
Up-front cost | Sometimes, depending on the option you pick | 1.75% of the base loan |
Ongoing cost | Monthly premium is most common | Annual premium, paid monthly |
When it ends | Ask at 80%, automatic at 78%, or the halfway point | 11 years at 90% loan-to-value or less; otherwise the whole loan |
Can a builder pay for your down payment to avoid PMI?
Not on a loan sold to Fannie Mae. Fannie Mae's Selling Guide, section B3-4.1-02 (checked Sept. 27, 2026) lists ""the builder or developer"" as an interested party and says Fannie Mae ""does not permit IPCs to be used to make the borrower's down payment.""
Builder money can go toward closing costs, within limits. For a main home, Fannie Mae caps these financing concessions at 3% of the lower of the price or appraised value when your loan-to-value is above 90%, 6% at 75.01% to 90%, and 9% at 75% or less.
So a builder incentive will not push you past the 20% line. Your down payment decides whether you need PMI. Builder offers change often, so call 561-704-0091 for today's numbers.
What this means for new-construction buyers
Ask for your PMI options in writing. The CFPB suggests asking the loan officer to total the costs over a few timeframes that fit your plans: monthly PMI, up-front PMI, a no-PMI loan with a higher rate, or an FHA loan.
Watch the appraisal. ""Original value"" is the lower of your contract price or the appraised value, so a low appraisal on a new home also lowers the base for your 80% and 78% targets.
Keep your PMI disclosure form. It shows the first date you can ask to cancel.
Plan your own down payment. Builder money can help with closing costs, but on a Fannie Mae loan it cannot be your down payment.
National House Search is builder-neutral. We can help you compare builder incentives side by side.
Common Questions
What does PMI stand for?
PMI stands for private mortgage insurance. The CFPB describes it as insurance you might be required to buy on a conventional loan with less than 20% down. It protects the lender, not you.
How can I avoid paying PMI?
The CFPB says PMI is not required on a conventional loan when you put 20% down. Some lenders offer low-down-payment conventional loans without PMI, but you usually pay a higher interest rate for them.
How much does PMI cost?
Fannie Mae's homebuyer site says PMI in 2022 typically ranged from 0.58% to 1.86% of the loan amount per year. Your own premium is shown on your Loan Estimate, on page 1 for a monthly premium and page 2 for any up-front premium.
When does PMI go away?
Under the rules the CFPB describes, you can ask to cancel PMI when your balance is scheduled to reach 80% of the home's original value. It generally ends on its own at 78% if you are current, and it must end the month after the midpoint of your loan term.
Is FHA mortgage insurance the same as PMI?
No. HUD's handbook sets an FHA upfront premium of 1.75% of the base loan plus an annual premium. With at least 10% down, the annual premium lasts 11 years; with less down, it lasts for the whole loan.
Can a builder pay my down payment so I skip PMI?
Not on a loan sold to Fannie Mae. Fannie Mae's Selling Guide says contributions from interested parties, such as builders, cannot be used for the down payment. Builder money can go toward closing costs within Fannie Mae's limits.
Do extra payments help me drop PMI sooner?
Yes. The CFPB says you can ask to cancel PMI ahead of schedule if extra payments bring your balance down to 80% of the home's original value. You must ask in writing and meet the other requirements.
Ready to take the next step?
Call 561-704-0091 to talk with a National House Search specialist, or Schedule a visit.
Related reading: Buying a new-construction townhome for the first time · What is a 2-1 buydown and is it worth it? · Condo vs. townhouse vs. single-family home
This is general information, not financial, tax or legal advice. Figures checked September 27, 2026."