What is PMI and how can I avoid or remove it?

Private mortgage insurance (PMI) is an added monthly cost lenders charge when a borrower puts down less than 20% on a conventional home loan. It protects the lender— not the homeowner— if the borrower defaults. PMI commonly ranges from 0.3% to 1.5% of the loan amount per year, depending on your credit score, loan type, and down payment. Because PMI increases the monthly payment, many first-time homebuyers look for ways to avoid PMI or remove it.

The good news is, PMI is avoidable. It’s typically triggered by your loan-to-value ratio (LTV), which means with the right structure, lender, or financing strategy, you can often reduce or eliminate PMI before you even close on the home.

Impact of Loan-to-Value Ratio (LTV) on PMI

The loan-to-value ratio (LTV) is a key metric lenders use to measure how much of a home’s value you’re borrowing compared to how much you own. It plays a central role in determining whether you’ll need PMI, as well as your interest rate and overall terms.

LTV is expressed as a percentage and compares your loan amount to the appraised value or purchase price of the home (whichever is lower). The higher your LTV, the more risk the lender takes on— because you have less equity in the property.

How LTV Is Calculated

$LTV = \frac{\text{Loan Amount}}{\text{Home Value}} \times 100$

For example:

• If you buy a $300,000 home and put down $60,000, your loan amount is $240,000
• Your LTV would be 80%

This is important because 80% LTV is the typical threshold where PMI is no longer required to qualify for a conventional mortgage.

Ways to Avoid PMI Before Buying

Because PMI is tied directly to your loan-to-value ratio (LTV), avoiding it comes down to how you structure your loan before closing. By adjusting your down payment, choosing the right loan setup, or working with the right lender, you can often avoid PMI entirely— or shift how the cost is applied.

Here are some strategies to help you avoid PMI:

• Put down at least 20%: This is the most direct way to avoid PMI on a conventional loan.
• Use lender-paid mortgage insurance (LPMI): The lender pays the insurance cost, but you accept a higher interest rate. This can lower your monthly payment short-term but increases total interest over time.
• Explore piggyback loans (80/10/10): This structure uses two loans to reduce the primary mortgage LTV to 80%, eliminating PMI.
• Compare mortgage lenders: Different lenders offer different PMI rates and options, and shopping around can reduce or eliminate PMI costs.

Ways to Remove PMI After Buying

If you already have PMI, the focus shifts from avoiding it to removing it as soon as you become eligible. Because PMI is tied to your LTV, the key is increasing your equity in the home— either by paying down your loan balance, benefiting from price appreciation, or a combination of both.

Here are the most common ways to remove PMI after buying:

• Reach 20% Equity: By law, lenders must remove PMI at 78% loan-to-value (LTV) automatically, and homeowners may request removal once they reach 80% LTV through payments or natural home appreciation.
• Request a New Home Appraisal: If home values in your area have increased, a new appraisal may prove you now have 20% equity. This is one of the fastest ways to remove PMI without refinancing.
• Refinance to a New Mortgage: If interest rates drop or your credit score improves, refinancing into a new conventional mortgage can eliminate PMI and lower your monthly payment.