Short Answer
PMI stands for private mortgage insurance, and it is required by conventional lenders when your down payment is less than 20% of the home's purchase price. PMI protects the lender if you default on the loan. You can avoid PMI by putting 20% down, using a piggyback loan (80% first mortgage plus 10% down and 10% second mortgage), or choosing a lender-paid mortgage option with a slightly higher interest rate.
PMI typically costs 0.3% to 1.5% of the loan amount per year, which adds roughly $30 to $150 per month on a $300,000 loan. Many first-time buyers assume they need to avoid PMI at all costs, but that is not always the smartest financial move. Waiting to save 20% down while home prices rise could cost you more than the PMI payments would. On an FHA loan, mortgage insurance premium (MIP) is required regardless of your down payment, though you can refinance out of it later. Conventional PMI automatically terminates when your loan balance reaches 78% of the original value, or you can request cancellation when it reaches 80%. The key is knowing your options and choosing the path that makes the most sense for your timeline and budget.
Bob's Advice
Redfin Senior Agent · AI Certified Agent
PMI is not a punishment. It is a tool that lets you buy a home sooner. I have seen buyers wait years to save a 20% down payment while home values went up and interest rates rose, ultimately costing them far more than PMI ever would. If you can afford the monthly payment with PMI and you have found the right home, do not let PMI hold you back. Let us run the numbers together so you can make an informed decision.
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