When buying a home with a smaller down payment, you may come across something called private mortgage insurance (PMI).
Understanding how PMI works can help you better plan your monthly payment and long-term costs.
🔍 What Is PMI?
PMI is a type of insurance that protects the lender, not the buyer, in case the borrower stops making payments on the loan.
It is typically required on conventional loans when the buyer puts down less than 20%.
📅 When Is PMI Required?
PMI is usually required when:
• Down payment is under 20%
• Loan is a conventional mortgage
For example:
If you purchase a home with 5% down, PMI will likely be included in your monthly payment.
💰 How Much Does PMI Cost?
PMI costs can vary, but typically range between:
• 0.3% to 1.5% of the loan amount per year
This amount is usually added to your monthly mortgage payment.
🧾 Can PMI Be Removed?
Yes — one of the benefits of PMI is that it is not permanent.
You can typically remove PMI when:
• You reach 20% equity in your home
• Or request removal through your lender (depending on loan terms)
💡 The Bottom Line
PMI allows buyers to purchase a home sooner with a lower down payment.
While it adds to your monthly cost, it can be a valuable tool to achieve homeownership without waiting years to save 20%.