Despite a common misconception, you don’t need a 20% down payment to purchase a house. In fact, with a conventional mortgage, you can put down as little as 3% in some cases. While a lower down payment can make homeownership accessible to a wider range of buyers, it comes with a catch: If you put down less than 20% with a conventional mortgage, you have to pay for private mortgage insurance (PMI), which protects the lender if you were to default on the loan.
As with any type of insurance, mortgage insurance comes with a price tag. So if you’re on the hook to pay for it, you may be wondering how soon you can be done with it. Read on to learn whether or not you’re eligible for mortgage insurance removal – and if so, how to get rid of PMI.
Key Takeaways
- If you take out a conventional loan with a down payment of less than 20%, you generally have to pay for private mortgage insurance (PMI).
- In most cases, you can request to get rid of PMI once you reach 20% equity in your home. Once you hit 22% equity, your lender should automatically remove PMI from your monthly payment.
- Other mortgage types require mortgage insurance. For example, FHA loans require mortgage insurance premiums (MIP), but the rules around removing it differ from those regarding PMI.
Are You Eligible For PMI Removal?
In certain situations, you have to purchase mortgage insurance when buying a home. When financing with a conventional loan, making a down payment of less than 20% means that you’re required to take on private mortgage insurance, or PMI. PMI and other types of mortgage insurance protect the lender – not the borrower – in case of a default.
The good news: You don’t have to pay for PMI forever. But when does PMI go away? Eligibility for mortgage insurance removal depends on several factors, including your loan-to-value ratio (LTV), loan type and the lender’s policies. Below, learn how each of these factors affects your ability to remove PMI.
- Your loan-to-value ratio (LTV): The key factor for canceling mortgage insurance is your LTV. Your LTV is determined by the original value of your home, which is either the appraised value or the purchase price – whichever is lower. Expressed as a percentage, your LTV indicates how much of your home’s value you still need to pay off. To get rid of PMI, you need an LTV of no more than 80%.
- Loan type: With conventional loans, PMI can be removed when you reach 20% equity in your house, but other loan types may require other forms of mortgage insurance. FHA loans, for instance, require mortgage insurance premiums (MIP) and have different rules for mortgage insurance removal. In general, you pay MIP for the life of an FHA loan unless you make a 10% down payment. With a minimum 10% down payment, you can remove MIP after 11 years.
- Your lender’s policies: Different lenders may have different policies regarding when mortgage insurance can be eliminated. However, lenders generally have to cancel your PMI automatically after you reach 78% LTV – as long as you’re current on your payments.
Compare Refinance Offers From Verified Lenders:
Types Of Private Mortgage Insurance
There are four basic types of PMI: borrower-paid mortgage insurance, lender-paid mortgage insurance, single premium PMI and split premium PMI. They differ in terms of who’s responsible for paying them, and when. The type you have will play a role in whether or not you can remove PMI. Here’s a breakdown:
Borrower-Paid Mortgage Insurance
Borrower-paid mortgage insurance (BPMI) is paid by the homeowner. It’s an annual premium that’s divided into monthly charges before being added back into your mortgage payment.
You can request to have BPMI removed when you reach 20% equity in your home. At 22% equity, it’s automatically removed.
Lender-Paid Mortgage Insurance
With lender-paid private mortgage insurance (LPMI), the lender pays for the premium up front. Instead of paying an additional charge tacked on to each mortgage payment, the lender charges you a slightly higher interest rate.
While some borrowers prefer this to avoid an extra monthly fee, keep in mind that the higher interest rate with LPMI is permanent. The only way to change it is by refinancing your mortgage. As a contrast, if you pay PMI as the borrower, you can remove it when you build enough equity.
Single Premium PMI
With single premium PMI, you can choose to pay the full cost of your mortgage insurance policy up front at closing. By doing this, your monthly mortgage payment will be lower. But it also requires a larger down payment, which may not be affordable on top of other closing costs.
Split Premium PMI
Split premium PMI involves making a partial payment of your PMI premium up front at closing. In exchange, you pay a lower monthly premium on your PMI for as long as you have it.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
How To Remove PMI
In general, you can request PMI removal as long as you meet the required equity amount. To do so, take the following steps:
- Submit a written request. The law requires a written request in order to have PMI removed.
- Make a list of improvements to your home. This is necessary only if you’re requesting the removal of mortgage insurance based on renovations that may have raised the home’s market value.
- Confirm your home’s value. Having your home value confirmed by an appraisal will help your lender decide whether or not you can stop paying for the mortgage insurance based on the equity you have.
Remember, you have to be current on your mortgage to get rid of PMI. If you’re behind on payments, the mortgage insurance will remain part of your payment until you’ve caught up.
Ready to Refinance?
Get matched with a lender that can help you reach your financial goals.
How To Get Rid Of Mortgage Insurance Premiums (MIP)
If you have an FHA loan, removing mortgage insurance looks a little different.
Whether or not you can remove FHA MIP depends on when you closed your loan and the size of the down payment you made at closing.
If your loan closed on or after June 3, 2013:
- If you made a down payment of less than 10%, you can’t remove MIP. You’ll pay it for the life of the loan.
- If you made a down payment of 10% or more, you have to pay MIP for 11 years.
If your loan closed before June 3, 2013:
- For a 15-year loan, MIP is removed after your LTV reaches 78%.
- For a term longer than 15 years, MIP is removed after your LTV reaches 78% and you’ve paid MIP for at least 5 years.
Some homeowners may also be able to refinance their FHA loan into a conventional loan to remove MIP if they meet certain requirements. These requirements can vary by lender and loan type but tend to adhere to the following guidelines:
- A credit score of at least 620
- A debt-to-income ratio (DTI) or 50% or less
- Home equity of 5%
- Proof of your home’s value
- No other outstanding liens
View Your Refinancing Options
Find a refinance lender that will work with your unique situation.
Premium Mortgage Insurance Removal FAQ
Now that we’ve talked about the basics, let’s answer a few more frequently asked questions about how to get rid of PMI.
The Bottom Line: Removing PMI Can Help You Save
While mortgage insurance drives up your monthly payment, it has a huge benefit: It can make homeownership attainable with a smaller down payment. However, you can generally remove PMI once you reach 20% equity in your home.
Keep in mind, too, that while removing mortgage insurance is one way to lower your monthly payment, it’s not the only way. If you’re not yet able to remove PMI, explore other ways of lowering your mortgage payment, such as refinancing, shopping for a different homeowners insurance policy or renting out part of your home.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
