PMI: What Every Homebuyer Should Know
Buying a home is exciting, but there’s one extra cost that surprises many first-time buyers: Private Mortgage Insurance (PMI). If you’re planning to put less than 20% down on a conventional loan, PMI is almost guaranteed to be part of the picture.
Here’s the truth—PMI doesn’t protect you as the homeowner. It protects the lender in case you stop making payments. But understanding how it works, how much it costs, and how to get rid of it as quickly as possible can save you thousands over the life of your loan.
And with Lendgo, you can do more than just learn about PMI—you can compare lenders and find the one that helps you minimize or avoid this expense altogether.
What Is PMI and Why Is It Required?
PMI is a type of insurance you pay for when your down payment is under 20% of the home’s value. Because you’re putting less money down, your loan is considered riskier to the lender. PMI lowers their risk by guaranteeing they’ll recover some of the money if you default.
For you, PMI is the trade-off that allows you to buy a home sooner without waiting years to save up a big down payment.
How Much Does PMI Cost?
PMI isn’t free, and over time it adds up.
Most buyers pay between 0.3% and 1.5% of the loan amount annually, split into monthly payments. For example:
- Home Price: $300,000
- Down Payment: 10% ($30,000)
- Loan Amount: $270,000
- PMI (1%): $2,700 per year or about $225 per month
That’s an extra $225 on top of your mortgage payment—money that doesn’t go toward building equity in your home.
How and When PMI Goes Away
The good news? PMI doesn’t last forever. Once you build 20% equity, you can usually request your lender to remove it. Most lenders are required to cancel PMI automatically when you hit 78% loan-to-value (LTV)—but that could take years if you only make minimum payments.
If home values are rising quickly in your area, you can sometimes request an appraisal earlier to prove you have enough equity to drop PMI.
Ways to Avoid or Minimize PMI
Here are some smart strategies to reduce the impact of PMI:
- Save for a Bigger Down Payment: Even putting 15% down instead of 10% can reduce your PMI cost significantly.
- Use a Piggyback Loan: A second loan covers part of the down payment, helping you avoid PMI entirely.
- Consider Lender-Paid PMI (LPMI): The lender covers PMI, but your interest rate is slightly higher. Compare the long-term math before committing.
- Refinance Later: Once your equity grows, refinancing into a new loan without PMI can save you hundreds every month.
Why Understanding PMI Helps You Save
PMI isn’t inherently bad—it helps many buyers get into homes sooner. But it’s money that doesn’t build equity. The sooner you can remove or avoid it, the sooner you can redirect that cash toward savings, renovations, or paying down your principal faster.
Lendgo Helps You Find the Best Path
PMI requirements and costs vary by lender. Some lenders offer lower PMI premiums, and others have special programs that waive it with slightly higher rates. Lendgo puts all of this information in front of you at once—so you can choose the smartest financial path.
Take the Next Step
You know what PMI is—now use that knowledge to save money. See personalized loan offers from multiple lenders and find the one that helps you minimize PMI costs or get rid of it entirely.
