Short answer: the classic way to avoid private mortgage insurance (PMI) is a 20% down payment. Alternatives include piggyback loans (80-10-10), lender-paid mortgage insurance, and VA loans, which don’t charge PMI at all. If you already have PMI, federal law requires automatic termination when your balance hits 78% of the original home value.
What PMI is and what it costs
PMI protects the lender — not you — against default on conventional loans with less than 20% down. You pay the premium; the lender gets the coverage. It typically costs roughly 0.5%–1% of the loan amount per year, billed monthly, with the exact rate depending on your down payment size and credit score.
On a $360,000 loan, PMI at 0.75% runs about $225 a month — $2,700 a year for insurance that benefits someone else. That’s the number to beat when weighing your options. Over several years, PMI can easily cost more than the extra down payment that would have avoided it.
Option 1: Put 20% down
The straightforward route. Compare buying a $400,000 home with 10% versus 20% down at an illustrative 6.75% rate:
| 10% down | 20% down | |
|---|---|---|
| Loan amount | $360,000 | $320,000 |
| Monthly principal & interest | $2,335 | $2,076 |
| Monthly PMI (0.75% illustrative) | $225 | $0 |
| Total monthly | $2,560 | $2,076 |
The 20%-down buyer pays about $529 less per month and needs no PMI. The trade-off is cash: $80,000 down instead of $40,000, plus closing costs. If saving the extra $40,000 takes years while home prices rise, buying sooner with PMI can still be the rational choice — PMI isn’t a moral failing, it’s a financing cost to evaluate.
Option 2: The piggyback loan (80-10-10)
A piggyback structure splits your borrowing into two loans at closing:
- 80% — a first mortgage at 80% loan-to-value (no PMI required)
- 10% — a second mortgage or home equity line for another 10%
- 10% — your cash down payment
Because the first mortgage sits at exactly 80% LTV, no PMI is charged. The second loan usually carries a higher rate than the first, so you have to compare its cost against PMI — but the interest on the second loan pays down your balance, while PMI premiums vanish into the insurer’s pocket. Piggyback seconds were common before 2008, disappeared for years, and have become available again from some lenders — availability varies, so shop around.
Option 3: Lender-paid mortgage insurance (LPMI)
With LPMI, the lender pays the mortgage insurance premium for you — in exchange for a higher interest rate on your loan, typically around 0.25%–0.5% higher. Your monthly payment is slightly larger, but there’s no separate PMI line item, and unlike borrower-paid PMI, you don’t have to do anything to remove it later.
When does LPMI win? If you’ll keep the loan a long time, borrower-paid PMI that eventually drops off is usually cheaper. If you’ll sell or refinance within a few years, LPMI’s simplicity can come out ahead. Ask lenders to quote both structures on the same loan so you can compare total costs over your expected holding period.
Option 4: VA loans — no PMI by design
VA home loans for eligible service members, veterans, and surviving spouses do not charge PMI, regardless of down payment — even with 0% down. Instead, most borrowers pay a one-time VA funding fee, which can be financed into the loan amount. For eligible borrowers, this is generally the cheapest mortgage insurance structure available, and it’s a major financial benefit of military service worth using.
USDA loans similarly have no traditional PMI (they use guarantee fees instead), though they’re limited to eligible rural areas and income levels.
When PMI drops off on its own
If you buy with less than 20% down on a conventional loan, PMI isn’t forever. Under federal law (the Homeowners Protection Act):
- Automatic termination: your servicer must cancel PMI when your loan balance reaches 78% of the original value of the home, provided you’re current on payments.
- Borrower-requested cancellation: you can generally request cancellation earlier, at 80% loan-to-value, once you’ve built enough equity — though the servicer may require a current appraisal and a good payment history.
Two practical notes: the percentages are based on the original purchase price or appraised value (whichever was lower), not current market value, for automatic termination. And if your home has appreciated significantly, a new appraisal showing 80% LTV on the current value can get PMI removed years early — often the fastest legitimate exit.
Frequently asked questions
How can I avoid PMI without 20% down?
The main alternatives are a piggyback (80-10-10) loan structure, lender-paid mortgage insurance (a higher rate instead of a PMI premium), or a VA loan if you’re eligible. Each has trade-offs — compare the total cost over how long you expect to keep the loan.
How much does PMI typically cost?
Roughly 0.5%–1% of the loan amount per year, paid monthly — so $150–$300 a month on a typical loan. Your credit score and down payment size move the rate within that range. At 0.75% on a $360,000 loan, that’s $225 a month.
When does PMI automatically fall off?
Under federal law, servicers must automatically terminate PMI on conventional loans when the balance reaches 78% of the original home value and you’re current on payments. You can usually request cancellation earlier at 80% loan-to-value.
Can I remove PMI if my home value goes up?
Often, yes. If appreciation (or a new appraisal) brings your loan-to-value to 80% or below on the current value, most servicers will cancel PMI on request — you’ll typically need to pay for the appraisal and show a good payment history. This is frequently the fastest way out of PMI in rising markets.
Is lender-paid mortgage insurance better than PMI?
It depends on your time horizon. LPMI means a slightly higher rate forever (until you refinance); borrower-paid PMI drops off once you reach 78–80% LTV. For long-term holders, droppable PMI usually wins. For short-term holders, LPMI’s simplicity can win. Get both quotes and compare.
Does PMI protect me if I can’t pay my mortgage?
No. PMI protects the lender against losses if you default — it provides you no coverage at all. That’s exactly why avoiding it (or removing it as soon as you legitimately can) is worth the effort.
Want to see how PMI affects your payment? Run your loan amount through our Loan Amortization Calculator and add the PMI premium to compare scenarios.
Reviewed September 2026. Examples computed with the standard US mortgage amortization formula; rates and PMI figures are illustrative. Program rules vary — confirm current requirements with your lender. This article is educational content, not financial advice.