A simple guide for first-time buyers
For many first-time homebuyers, “PMI” is one of the most confusing parts of the mortgage process. But once you understand what it is—and how it works—it becomes much easier to plan for and manage.
Private Mortgage Insurance (PMI) isn’t a penalty or a fee for bad credit. It’s simply a tool that allows buyers to purchase a home with less than 20% down, making homeownership more accessible.
Here’s what you need to know.
When PMI Is Required
PMI applies to conventional loans when the down payment is less than 20%.
Its purpose is to protect the lender in case of default—not the borrower.
You may encounter PMI when:
- You’re a first-time buyer putting 3–5% down
- You choose a low-down-payment program for flexibility
- You want to keep cash on hand for savings, repairs, or closing costs
PMI is not permanent, and it often costs far less than buyers expect.
How PMI Is Calculated
PMI is typically based on several key factors:
- Down payment percentage / loan-to-value ratio (LTV)
- Credit score
- Loan amount
- Debt-to-income ratio
- Type of mortgage and occupancy
On average, PMI might range from 0.2% to 1.5% of the loan amount annually—paid monthly.
Because PMI is tied to risk, improving your credit score or putting slightly more down can reduce the cost.
How to Remove PMI
The good news: PMI doesn’t last forever.
You can get rid of PMI through:
1. Automatic Removal at 78% LTV
When your loan balance reaches 78% of the original home value, the lender must remove PMI automatically.
2. Requesting Removal at 80% LTV
If you’ve paid down the loan (or home values have appreciated), you can request PMI removal once you reach 20% equity.
3. New Appraisal to Prove Higher Value
If your home’s value has increased significantly, a fresh appraisal may allow you to drop PMI early.
4. Refinancing
If rates improve—or your value climbs—refinancing may eliminate PMI entirely.
FHA Loans vs. PMI
FHA loans have a similar cost called Mortgage Insurance Premium (MIP).
Depending on your down payment, FHA mortgage insurance may remain for part—or all—of the loan term. FHA borrowers often refinance into a conventional loan to remove MIP.
How Affinity Home Lending Helps You Manage PMI
We help buyers:
- Understand PMI costs upfront
- Compare PMI vs. higher-down-payment options
- Plan strategies for early removal
- Use appreciation and refinance opportunities to eliminate PMI faster
PMI doesn’t have to be a long-term cost—it’s simply a stepping stone to homeownership.