Costs & insurance
PMI (Private Mortgage Insurance)
Insurance a conventional lender requires when you put less than 20% down, protecting the lender if you default. It cancels automatically at 78% loan-to-value.
What does PMI mean?
PMI lets you buy a home with less than 20% down on a conventional loan by insuring the lender against loss. It typically costs 0.3%–1.1% of the balance per year, billed monthly, and the rate depends on your credit and down payment.
The key advantage over FHA's mortgage insurance is that PMI is temporary: it cancels automatically at 78% loan-to-value, and you can request removal at 80%.
A Michigan example
Put 10% down on the $285,000 median home and you're financing about $256,500. At a mid-range PMI rate near 0.5% a year, that's roughly $107 a month — until your balance reaches 80% of value and you request removal.
Common questions
When does PMI go away?
It cancels automatically at 78% loan-to-value and can be requested at 80%. That automatic cancellation is PMI's key advantage over FHA's lifetime insurance, and paying down principal or rising value can reach it faster.
How much does PMI cost?
Typically 0.3%–1.1% of the loan balance per year, billed monthly, with the rate depending on your credit score and down payment. On a $256,500 balance near 0.5%, that's roughly $107 a month.
How do I avoid PMI?
Put 20% down, or take a VA loan, which carries no mortgage insurance at all. At 700+ credit, conventional-with-PMI often still beats FHA overall because the PMI is cancellable rather than permanent.
Related terms