How to Avoid PMI When Buying a Home
Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners.
Paying for private mortgage insurance, or PMI, can open the door to homeownership when you don't have a huge pile of cash for a 20% down payment.
But the cost of PMI will increase your monthly mortgage payment, so it's important to weigh alternatives.
Private mortgage insurance, or PMI, is insurance coverage that protects the lender in case a borrower defaults on a home loan. Typically, a lender will require you to pay for PMI if your down payment is less than 20% on a conventional mortgage. You can get rid of PMI after you build up enough equity in your home.
» MORE: Calculate your PMI
7 ways to avoid PMI
Here are ways to avoid paying for private mortgage insurance:
1. Make a 20% down payment
A larger down payment offers advantages beyond lowering the monthly mortgage payment and avoiding PMI. You’ll also get a lower mortgage interest rate and own a bigger stake in your home right away.
But don't empty your savings just to avoid PMI. Leave enough cushion for furnishing and maintaining the home, and covering emergency expenses. It may make more sense to pay for PMI for several years than to leave yourself short of cash.
2. Pay a higher interest rate for a "no PMI loan"
Sometimes lenders advertise "no PMI home loans." In those cases, the lenders will pay for PMI, usually in exchange for charging a higher interest rate on the mortgage. This is known as lender-paid mortgage insurance.
Make sure to compare the costs and benefits carefully when considering lender-paid versus borrower-paid private mortgage insurance.
3. Get an 80-10-10 loan
Sometimes called a “piggyback loan,” an 80-10-10 loan lets you buy a home with two loans that cover 90% of the home price. One loan covers 80% of the home price, and the other loan covers a 10% down payment. Combined with your savings for a 10% down payment, this type of loan can help you avoid PMI.
You'll need a strong credit score and the wherewithal to apply and qualify for two loans, instead of one. Talk to a loan officer about the logistics, and make sure you understand the requirements and costs before going this route.
4. Military member or veteran? Get a VA loan
VA loans, backed by the Department of Veterans Affairs, are for current and veteran service members and eligible spouses. They don't require a down payment or mortgage insurance, although there is a one-time funding fee.
If you're eligible for a VA loan, compare the costs of a VA and conventional mortgage to choose the best deal.
» MORE: How much is the VA funding fee?
5. Rural buyer? Check out USDA loans
USDA loans, backed by the U.S. Department of Agriculture, are zero-down mortgages for lower- and moderate-income buyers in designated rural and suburban areas. Although USDA loans don't require mortgage insurance, they come with upfront and annual fees.
Check the USDA's website to see if your household income falls below the maximum threshold for USDA loans and whether the property you want to buy is in a designated area. Then get quotes from lenders that offer both USDA and conventional mortgages to compare costs and decide which is the better fit.
» MORE: Best USDA mortgage lenders
6. Doctor? Explore special loans for medical professionals
Some lenders offer special low- or no-down-payment mortgages for physicians, dentists and orthodontists. Typically, these loan programs don't require private mortgage insurance, and they don't count medical school debt as part of an applicant's debt-to-income ratio, making it easier to qualify.
Not all lenders offer physician loans, so you may need to shop around to find several to compare.
7. Check state housing finance agency programs
State housing finance agencies offer mortgage and down payment assistance programs to help people who qualify become homeowners. Sometimes the programs can include low-down-payment mortgages that feature reduced-cost mortgage insurance or don't require PMI.
Check with your state housing finance agency to explore first-time home buyer programs.
Can't avoid PMI? Cancel it when you're eligible
PMI is automatically canceled when your mortgage balance reaches 78% of the home's value or you get to the halfway mark of the mortgage term.
But you may be able to drop PMI sooner. You can ask your mortgage servicer to cancel PMI when the balance reaches 80% of the home's value when you bought it. Or you may be able to cancel PMI early based on an appraisal if home values rise.
(Remember that PMI applies to conventional loans. FHA loans, backed by the Federal Housing Administration, have a different type of mortgage insurance, which typically lasts for the full term of the loan.)
Keep track of your progress with the PMI schedule the lender provides, and get rid of PMI as soon as you can.
