Private Mortgage Insurance—PMI for short—is one of those mortgage terms that often raises eyebrows. What is it? Why do some buyers have to pay it? And how can you get rid of it?
Let’s break it down in plain English.
Private Mortgage Insurance (PMI) is a type of insurance that protects the lender—not the borrower—if the borrower stops making payments on their mortgage. It’s typically required when a homebuyer puts down less than 20% of the home’s purchase price.
Why? Because a smaller down payment means more risk for the lender. PMI helps offset that risk.
While it may feel like you're paying extra for someone else's benefit, PMI actually opens the door to homeownership for many buyers who don’t have 20% saved up.
In most conventional loans, PMI kicks in when the loan-to-value ratio (LTV) exceeds 80%. That just means you've put down less than 20% of the home's value.
PMI is common for:
• First-time buyers using a low down payment
• Buyers in high-cost markets where 20% down is a big number
• Borrowers who want to keep more cash on hand
So, if you're putting 5%, 10%, or even 15% down on a conventional loan, there's a chance PMI will be part of your monthly mortgage payment.
PMI rates vary based on several factors:
• Your credit score
• The size of your down payment
• The loan amount
• Type of loan (fixed vs. adjustable)
But here’s what matters: PMI increases your monthly cost. It’s not forever, though—and there are ways to remove it.
The good news? PMI typically isn’t a life sentence. Once your equity in the home reaches 20%, you can usually request to cancel PMI. Lenders are actually required to remove PMI automatically once you hit 22% equity, based on the original purchase price.
You can build equity faster by:
• Making extra principal payments
• Home values rising in your area
• Refinancing (if it makes sense)
Some buyers explore lender-paid PMI options or single-premium PMI, which have different structures. But they come with trade-offs, so it’s key to run the numbers before deciding.
Not necessarily. PMI gets a bad rap because it’s an added cost, but it also provides access. Without PMI, many buyers would be stuck renting while they save for a larger down payment.
Here’s a quick way to look at it:
Without PMI: You wait years to save 20%, while home prices and rents climb.
With PMI: You buy sooner, start building equity, and potentially remove PMI down the road.
It’s about trade-offs. And for many, PMI is a stepping stone—not a setback.
Yes, there are a few ways buyers may avoid PMI:
• Put down 20% or more on a conventional loan
• Explore VA loans—no PMI required for eligible buyers
• Consider certain lender programs with built-in PMI alternatives
Each option comes with its own pros and cons. That’s where working with a seasoned loan officer can really help. We can walk through your numbers and goals to see what makes the most sense.
PMI isn’t something to fear—it’s something to understand. It’s a tool that can help you buy a home sooner, even if you don’t have a massive down payment saved up.
The key is knowing how PMI works, how long you’ll have it, and what your options are for removing it down the line.
If you’re thinking about buying and wondering how PMI might affect your budget or timeline, talk with a Ruoff Mortgage loan officer. There are more paths forward than you might think—and you don’t have to navigate them alone.
At Ruoff Mortgage, we understand that buying a home is one of life’s biggest moments – not just as a financial decision, but a personal one. For more than 41 years, we’ve proudly helped families turn their dreams into reality. From our roots in northeast Indiana to now serving homebuyers throughout the Midwest, our focus has stayed the same: delivering exceptional service rooted in care, speed, and community. With an average 15-day clear-to-close time, our team is here to make your journey to homeownership as smooth and stress-free as possible. When you're ready to take the next step, we’re here to walk with you, every step of the way.