Barbara Marquand is a former NerdWallet writer covering mortgages, homebuying and homeownership, insurance and investing. Previously, she covered personal finance for QuinStreet and wrote for national consumer and trade publications on topics including business, careers and parenting. Her work has appeared in MarketWatch, MSN Money, The New York Times and The Washington Post.
Reviewed by Michelle Blackford Michelle Blackford
Michelle Blackford spent 30 years working in the mortgage and banking industries, starting her career as a part-time bank teller and working her way up to becoming a mortgage loan processor and underwriter. She has worked with conventional and government-backed mortgages. Michelle currently works in quality assurance for Innovation Refunds, a company that provides tax assistance to small businesses.
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Assigning Editor Alice HolbrookAlice Holbrook is a former editor of homebuying content at NerdWallet. She has covered personal finance topics for almost a decade and previously worked on NerdWallet's banking and insurance teams, as well as doing a stint on the copy desk. She is based in Ann Arbor, Michigan.
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Buying a home usually has a monster obstacle: coming up with a sufficient down payment. Mortgage insurance allows a borrower to make a smaller down payment than a lender would otherwise require.
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Private mortgage insurance, or PMI, is a type of coverage you buy if you get a conventional mortgage — one that isn't federally guaranteed — and put down less than 20% to purchase a home or have less than 20% equity when refinancing.
PMI is insurance for the mortgage lender’s benefit, not yours. The coverage will pay a portion of the balance due to the mortgage lender in the event you default on the home loan. Usually, you pay for PMI monthly as part of your mortgage payment. The insurance does not prevent you from facing foreclosure or experiencing a decrease in your credit score if you get behind on mortgage payments.
The lender requires PMI because it is assuming additional risk by accepting a lower amount of upfront money toward the purchase. You can avoid PMI by making a 20% down payment.
Mortgage insurance for FHA loans, backed by the Federal Housing Administration, operates a little differently from PMI for conventional mortgages. VA loans , backed by the Department of Veterans Affairs, don't require mortgage insurance, but do include a "funding fee." USDA mortgages , backed by the U.S. Department of Agriculture, don't require traditional PMI but do have an upfront and an annual fee.
The average annual cost of PMI typically ranges from 0.46% to 1.5% of the loan amount, depending on your credit score, according to a December 2023 report from the Urban Institute's Housing Finance Policy Center. Borrowers with excellent credit get the lowest PMI rates.
Those averages were calculated using a $289,500 mortgage — the loan balance you’d have if you bought a $300,000 home and made a 3.5% down payment.
For that loan amount at those rates, PMI could cost anywhere from around $1,332 to $4,343 per year, or about $111 to $362 to a month.
The cost of private mortgage insurance depends on several factors:
The size of the mortgage loan. The more you borrow, the more you pay for PMI. Down payment amount. The more money you put down for the home, the less you pay for PMI.Your credit score. PMI will cost less if you have a higher credit score. Generally you'll see the lowest PMI rates for a credit score of 760 or above.
The type of mortgage. PMI may cost more for an adjustable-rate mortgage than a fixed-rate mortgage. Because the rate can go up with an adjustable-rate mortgage, the loan is riskier than a fixed-rate loan, so PMI tends to be higher.
Estimating the cost of PMI before you get a mortgage can help you determine how much home you can afford .
Typically, the PMI cost, called a “premium,” is added to your monthly mortgage payment. You can see the premium on your Loan Estimate and Closing Disclosure mortgage documents.
Sometimes lenders offer the option to pay the PMI cost in one upfront premium or with a combination of upfront and monthly premiums.
Private mortgage insurance is not tax-deductible for the 2023 tax year. The itemized deduction for mortgage insurance has expired.
Once your mortgage principal balance is less than 80% of the original appraised value, you can ask the mortgage loan servicer to cancel PMI . Often there are additional requirements, such as a history of timely payments and the absence of a second mortgage.
If you don't request cancellation, the lender or service must cancel PMI once your mortgage balance reaches 78% of the original value of the home, or you reach the halfway point through the loan's original term..
Some lenders offer "no-PMI mortgages," allowing down payments of less than 20% on conventional loans without requiring private mortgage insurance. Known as "lender-paid PMI," these loans typically have a higher interest rate. Whether this would be a better deal than paying for PMI will depend on the mortgage rate, lender fees and how long you plan to stay in the home. Compare the costs to decide which mortgage is right for you.
Some state housing authorities offer conventional home loans with reduced mortgage insurance costs and below-market interest rates for first-time home buyers. Check out the programs available in your state for details.
Conventional loans with private mortgage insurance aren't the only choice if you have limited cash for a down payment. A government-backed loan may fit the bill:
FHA loans , insured by the Federal Housing Administration, require as little as 3.5% down and are a good option for borrowers with lower credit scores.
USDA loans , backed by the U.S. Department of Agriculture, require no down payment and are for lower- to moderate-income home buyers in designated rural areas.
VA loans , guaranteed by the Department of Veterans Affairs, require no down payment and are for active-duty and veteran military members.
Explore mortgages today and get started on your homeownership goals Get personalized rates. Your lender matches are just a few questions away. What's your zip code? Do you want to purchase or refinance? What's your property type? How do you plan to use this property? Get StartedWon’t affect your credit score
Frequently asked questions What does PMI stand for?PMI stands for private mortgage insurance, a type of insurance policy that protects the lender if a borrower defaults on a home loan. Lenders usually require you to pay for PMI if you put less than 20% down on a conventional mortgage .
How can I avoid PMI without 20% down?There are a couple of ways that you can avoid PMI without making a 20% down payment. With an 80-10-10 loan , also called a piggyback loan, you make a 10% down payment and have two mortgages that cover the other 90%. Though uncommon, some lenders will offer lender-paid mortgage insurance. The catch? You'll pay a higher interest rate to help cover the cost.
Is PMI based on credit score?Yes, your credit score affects how much private mortgage insurance will cost. A borrower with a higher credit score would likely pay a lower monthly premium for PMI than someone who has a lower credit score, even with the same down payment and mortgage amount.
Is PMI good or bad?Paying private mortgage insurance adds to your monthly mortgage payment, but it doesn't have any negative effects beyond costing you some extra cash. On the plus side, PMI can allow you to buy a home — and begin building home equity — more quickly than if you waited until you saved up a 20% down payment.
What does PMI stand for?PMI stands for private mortgage insurance, a type of insurance policy that protects the lender if a borrower defaults on a home loan. Lenders usually require you to pay for PMI if you put less than 20% down on a
How can I avoid PMI without 20% down?There are a couple of ways that you can
without making a 20% down payment. With an
, also called a piggyback loan, you make a 10% down payment and have two mortgages that cover the other 90%. Though uncommon, some lenders will offer lender-paid mortgage insurance. The catch? You'll pay a higher interest rate to help cover the cost.
Is PMI based on credit score?affects how much private mortgage insurance will cost. A borrower with a higher credit score would likely pay a lower monthly premium for PMI than someone who has a lower credit score, even with the same down payment and mortgage amount.
Is PMI good or bad?Paying private mortgage insurance adds to your monthly mortgage payment, but it doesn't have any negative effects beyond costing you some extra cash. On the plus side, PMI can allow you to buy a home — and begin building
— more quickly than if you waited until you saved up a 20% down payment.
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Barbara Marquand is a former NerdWallet writer covering mortgages, homebuying and homeownership. See full bio.
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