For most Americans, buying a home means taking out a mortgage. While this opens the door to homeownership, it also brings additional costs. One of the most common—and often frustrating—expenses is Private Mortgage Insurance (PMI).
PMI is typically required when a borrower puts down less than 20% on a conventional mortgage. It protects the lender, not the homeowner, in case of default. Unfortunately, PMI can add hundreds of dollars per month to your housing costs, without building equity for you.
The good news? With the right strategies, you can avoid PMI and save thousands over the life of your loan. This guide explains how PMI works, why lenders require it, and practical steps to avoid PMI legally and smartly in the USA.
What is Private Mortgage Insurance (PMI)?
PMI is a type of insurance policy that lenders require from borrowers who make a down payment below 20%. It ensures the lender doesn’t lose money if you default on your mortgage.
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Cost: PMI usually costs between 0.5% and 2% of the original loan amount per year.
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Payment Methods: It may be added to your monthly mortgage, paid upfront, or both.
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Duration: PMI is not forever. Once you reach 20% equity, you can request cancellation. At 22% equity, it automatically falls off.
Why Lenders Require PMI
From the lender’s perspective, a low down payment means higher risk. If you default and the home goes into foreclosure, PMI compensates the lender for potential losses.
In short, PMI = lender protection, not borrower benefit.
Why Avoid PMI?
PMI does nothing to help homeowners build equity—it only increases costs.
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Adds $100–$300 per month to mortgage payments.
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No tax benefits (unlike mortgage interest deductions).
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Wasted money since it protects the lender, not you.
Avoiding PMI allows you to redirect that money toward building equity, paying off debt, or saving for emergencies.
How to Avoid PMI: Proven Strategies
1. Make a 20% Down Payment
The simplest and most common way to avoid PMI is to put down 20% of the home’s purchase price.
Example:
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Home price = $300,000
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20% down = $60,000
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Loan amount = $240,000
👉 No PMI required.
Pros:
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Avoids PMI entirely.
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Smaller loan balance.
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Lower monthly payments.
Cons:
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Requires significant savings.
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May delay homeownership if you can’t save quickly.
2. Use a Piggyback Loan (80-10-10 Strategy)
A piggyback loan helps buyers avoid PMI with less upfront cash. It splits the mortgage into two loans:
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First loan: 80% of the home’s value.
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Second loan: 10% (home equity loan or line of credit).
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Down payment: 10% cash.
Example:
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Home price = $300,000
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First mortgage = $240,000 (80%)
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Second loan = $30,000 (10%)
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Down payment = $30,000 (10%)
👉 Total = 100% financing but no PMI.
Pros:
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Requires only 10% down.
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Avoids PMI.
Cons:
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Second loan may have higher interest.
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Monthly payments can be more complex.
3. Consider a VA Loan (For Veterans & Military Families)
If you’re a veteran, active-duty service member, or eligible surviving spouse, a VA loan is one of the best options.
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0% down payment required.
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No PMI at all.
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Competitive interest rates.
Pro Tip: Even though there’s a VA funding fee, it’s often far less than long-term PMI costs.
4. Explore Lender-Paid Mortgage Insurance (LPMI)
Some lenders offer Lender-Paid Mortgage Insurance. Instead of monthly PMI, the lender pays it—but charges a slightly higher interest rate.
Pros:
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No separate PMI payment.
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Lower monthly bill.
Cons:
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Higher interest rate for the life of the loan.
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May be more expensive long-term.
5. Use a Physician Loan (Specialized Program)
If you’re a doctor, dentist, or medical professional, many lenders offer physician loans:
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0–5% down payment.
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No PMI required.
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Tailored for high-income, low-savings professionals.
6. Look for Credit Union Mortgages
Some credit unions offer special mortgage programs that allow buyers to put less than 20% down without PMI.
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Local and community-based lenders may provide flexible underwriting.
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Often lower fees than big banks.
7. Refinance Once You Gain 20% Equity
If avoiding PMI upfront isn’t possible, plan to refinance once your home value increases or your mortgage balance decreases.
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Example: You buy a $300,000 home with 10% down. After a few years, the property appreciates to $350,000. You now have more than 20% equity and can refinance into a loan without PMI.
8. Request PMI Cancellation at 20% Equity
By law (under the Homeowners Protection Act of 1998):
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You can request PMI removal once your equity reaches 20%.
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PMI automatically ends at 22% equity.
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Lenders must disclose PMI removal terms upfront.
9. Consider First-Time Homebuyer Grants
Some federal and state programs provide down payment grants that help borrowers reach 20% faster. While not always eliminating PMI, these reduce the time you need to pay it.
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FAQs About Avoiding PMI
1. Can I avoid PMI with less than 20% down?
Yes, through VA loans, piggyback loans, or special lender programs.
2. Is PMI tax-deductible?
Sometimes, but not always. Rules change frequently, so consult a tax advisor.
3. What credit score helps avoid PMI?
A score of 700+ improves your chances of qualifying for no-PMI programs.
4. Does refinancing always remove PMI?
Not automatically, but refinancing into a new loan with at least 20% equity removes it.
5. Is LPMI better than regular PMI?
It depends—LPMI lowers monthly payments but can cost more long-term due to higher interest rates.
Final Thoughts
PMI can feel like a financial burden, especially for first-time homebuyers. While it serves the lender’s interest, it does little to benefit you. The best way to build long-term financial health is to find strategies to avoid PMI or remove it as quickly as possible.
Whether through a 20% down payment, a piggyback loan, a VA loan, or refinancing, there are multiple ways to save money. Even if you start with PMI, remember it’s not permanent—you can eliminate it with careful planning.
For single moms, young professionals, and first-time homebuyers in the USA, avoiding PMI could mean saving thousands of dollars, reducing monthly expenses, and building wealth faster.