20% down payment eliminates PMI on conventional loans
Private mortgage insurance (PMI) is required when you put down less than 20% on a conventional loan. Once you reach 20%, the lender stops charging PMI. This is the standard threshold across nearly all conventional mortgages—the kind offered by banks, credit unions, and mortgage companies, not government-backed programs like FHA or VA loans.
The 20% figure is fixed by lender policy, not by law. Every conventional lender uses it. If your home costs $300,000, a 20% down payment is $60,000. Put down $59,999 and PMI applies. Put down $60,000 and it does not.
PMI protects the lender if you stop paying, not you. It typically costs 0.5% to 1.5% of your loan amount per year, split into monthly payments added to your mortgage bill. On a $240,000 loan (the 80% portion of that $300,000 home), PMI might run $100 to $300 per month. Over five years, that is $6,000 to $18,000 in insurance you never see a benefit from.
Key Takeaways
- Conventional loans require PMI if your down payment is below 20%; this threshold is the same across all major lenders.
- PMI costs between 0.5% and 1.5% of your loan amount annually and is added to your monthly mortgage payment.
- FHA loans require mortgage insurance at any down payment level, even at 20% or higher, so conventional loans may cost less overall if you can reach 20% down.
- You can remove PMI from a conventional loan once you reach 20% equity through a combination of down payment and home appreciation or principal paydown.
- Putting down slightly less than 20% and paying PMI for a few years may still cost less than delaying your purchase to save the full 20%.
How PMI gets removed once you hit 20% equity
Reaching 20% down payment at closing removes PMI immediately. But you can also reach 20% equity after you buy by paying down your loan balance or waiting for your home to appreciate.
Once your equity reaches 20%, you can request PMI removal. The lender will not remove it automatically on most loans—you have to ask. Send a written request to your loan servicer (the company that collects your monthly payment) and include proof of your current home value. An appraisal costs $400 to $600, but some lenders accept a broker price opinion or a recent comparable sale in your neighborhood.
The timeline varies. Some lenders remove PMI within 30 days of approval; others take 60 days. Once removed, your monthly payment drops immediately. If you have paid PMI for three years on that $240,000 loan at $150 per month, removal saves you $1,800 per year going forward.
Why FHA loans cost more even though they allow lower down payments
FHA loans let you put down as little as 3.5%, which sounds better than the 20% conventional threshold. But FHA requires mortgage insurance at any down payment level, including 20% or higher. This insurance never goes away—you pay it for the life of the loan unless you refinance into a conventional mortgage later.
FHA mortgage insurance runs 0.55% to 0.85% of your loan amount annually, plus an upfront fee of 1.75% added to your loan at closing. On a $240,000 FHA loan, you pay $4,200 upfront plus roughly $1,320 to $2,040 per year. Over 30 years, that is tens of thousands in insurance costs.
A conventional loan with PMI at 15% down costs less over time if you plan to stay in the home long enough to reach 20% equity. Run the math: compare five years of PMI payments against FHA's lifetime insurance cost. In most markets, conventional wins.
Down payment amounts below 20% and their PMI costs
| Down Payment | Loan Amount (on $300k home) | Typical PMI Range (annual) | Monthly PMI Estimate |
|---|---|---|---|
| 5% | $285,000 | $1,425–$4,275 | $119–$356 |
| 10% | $270,000 | $1,350–$4,050 | $113–$338 |
| 15% | $255,000 | $1,275–$3,825 | $106–$319 |
| 20% | $240,000 | $0 | $0 |
PMI rates depend on your credit score, loan-to-value ratio (how much you are borrowing relative to the home's value), and the lender. Better credit scores and larger down payments lower the rate. A borrower with a 760+ credit score putting down 15% pays less PMI than someone with a 620 score putting down the same amount.
The table above shows ranges because rates vary by lender and your financial profile. Contact three to five lenders and ask for a Loan Estimate that includes the PMI amount. This is the only way to know your actual cost.
When paying PMI for a few years costs less than waiting
Saving an extra $30,000 to reach 20% down takes time. If you are renting and paying $1,500 per month, waiting two more years costs $36,000 in rent alone. Meanwhile, home prices may rise, pushing your 20% target higher.
A rough comparison: buy now with 15% down and pay PMI for four years, or rent for two more years and save the difference. If PMI costs $150 per month ($1,800 per year), four years of PMI is $7,200. Two years of rent at $1,500 per month is $36,000. The math often favors buying sooner, even with PMI.
This calculation changes if you expect home prices to fall or if you have other high-interest debt. But in most markets, PMI is a cost of entry, not a reason to delay.
Strategies to reach 20% without waiting years
A larger down payment from savings, a gift from family, or a second mortgage can push you closer to 20%. Some buyers put down 10% and take out a piggyback loan (a second mortgage) for another 10%, reaching 20% total and avoiding PMI. The piggyback loan typically carries a higher interest rate than the primary mortgage, so compare the total cost against PMI.
Negotiating the seller to cover closing costs frees up cash for a larger down payment. If the seller pays $8,000 in closing costs, you can redirect that $8,000 toward your down payment instead. This does not change your total cash outlay but shifts where it goes.
Delaying the purchase until you have saved more is always an option, but it is not always the cheapest one. Run the numbers for your specific situation: how much PMI costs over the years you plan to stay, versus how much rent you will pay while saving, plus the risk that home prices rise before you buy.
How to request PMI removal and what lenders require
Send a written request to your loan servicer once you reach 20% equity. Include your loan number, current property address, and the date you want the removal to take effect. Attach proof of value: an appraisal, a broker price opinion, or a list of comparable sales in your area from the past 90 days.
Some lenders require an appraisal; others accept a broker price opinion, which costs $150 to $300 and is faster. Ask your servicer which they accept before you pay for an appraisal. A few lenders will remove PMI based on your principal paydown alone if you have been paying on time, but this is rare—most want proof of current value.
The removal takes effect on your next payment date or within 30 to 60 days, depending on the lender. Your monthly payment drops by the PMI amount. If you have been paying $150 per month in PMI, your new payment is $150 lower.
Frequently Asked Questions
Can I remove PMI before I reach 20% equity?
No. Conventional lenders require you to have at least 20% equity before PMI can be removed. Some loans have a rule that PMI must be removed automatically once you reach 22% equity through principal paydown alone, but you cannot request removal before 20%.
Does PMI ever go away on its own?
On most conventional loans, no—you must request removal. However, some loans have an automatic removal date: if you reach 22% equity through principal paydown (not appraisal-based appreciation), PMI drops automatically. Check your loan documents or ask your servicer about your specific loan's rules.
Is PMI tax deductible?
PMI was tax deductible under certain income limits, but that deduction expired at the end of 2024. Check with a tax professional about your specific situation, as rules change and may vary by state.
What if my home value drops after I buy?
If your home loses value and your equity falls below 20%, PMI stays in place. You cannot remove it until your equity climbs back to 20% through principal paydown or the home appreciates again. This is one reason PMI protects the lender, not you.
Should I choose a larger down payment or invest the extra money instead?
This depends on investment returns versus PMI costs and your risk tolerance. If you can earn 8% annually in the stock market and PMI costs 1% per year, the math favors investing. But this assumes consistent returns and your comfort with market risk. Many buyers prefer the certainty of avoiding PMI.