The 20% threshold is the standard, but your lender may allow lower
Most lenders will not charge private mortgage insurance (PMI) if you put down 20% of the home's purchase price. Put down less than 20%, and PMI becomes part of your monthly payment. The exact percentage your lender requires varies—some allow 10% or 15% down without PMI if you meet other conditions, while others stick to the 20% rule. Your credit score, debt-to-income ratio, loan type, and the lender's own policies all affect whether you can avoid PMI at a lower down payment.
PMI protects the lender, not you. If you stop paying, the insurance covers their loss. You pay the premium—typically 0.5% to 1.5% of the loan amount per year—until you reach 20% equity in the home or refinance. On a $300,000 home with 10% down, PMI might add $150 to $450 per month to your payment. That cost compounds over years, so understanding your options matters.
Key Takeaways
- Twenty percent down eliminates PMI on conventional loans, but some lenders allow 10% or 15% down without it if your credit score and income meet their standards.
- PMI costs 0.5% to 1.5% of your loan amount annually and stays on your payment until you own 20% of the home's value.
- FHA loans require mortgage insurance regardless of down payment size, but the cost is lower with 10% or more down.
- You can remove PMI once you reach 20% equity through home appreciation or extra principal payments, though the timeline depends on your lender's rules.
- Comparing the cost of PMI against the cost of waiting to save more for a down payment helps you decide whether to buy now or delay.
Conventional loans and the 20% standard
On a conventional loan—the most common type—20% down is the benchmark that eliminates PMI. Below that, you pay insurance. The amount depends on how far below 20% you go and your credit profile. A borrower with a 750 credit score putting 15% down pays less PMI than someone with a 650 score putting 15% down, because the lower-credit borrower represents more risk to the lender.
Some lenders offer lender-paid mortgage insurance (LPMI) as an alternative. Instead of you paying PMI monthly, the lender builds the cost into your interest rate—usually 0.25% to 0.75% higher. This can make sense if you plan to sell or refinance within five to seven years, because you avoid the upfront PMI cost. If you stay in the home longer, the higher rate costs more overall. Ask your lender to show you both options side by side.
FHA loans and mortgage insurance that doesn't go away
FHA loans require mortgage insurance premium (MIP) no matter how much you put down. With 10% or more down, you pay an upfront MIP of 1.75% of the loan amount at closing, then annual MIP of 0.55% to 0.80% depending on your loan term and down payment. With less than 10% down, the upfront cost is 1.75% and the annual cost is higher—typically 0.80% to 0.85%.
The key difference: FHA MIP does not disappear when you reach 20% equity. On loans with 10% or more down, you can remove MIP after 11 years. On loans with less than 10% down, MIP stays for the life of the loan. This makes FHA less attractive if you plan to keep the home long-term, but it opens homeownership to buyers with lower credit scores and smaller down payments than conventional loans allow.
Down payment amounts and PMI costs across scenarios
| Down Payment | Loan Type | PMI/MIP Required | Typical Annual Cost (on $300k home) |
|---|---|---|---|
| 5% | Conventional | Yes | $3,600–$4,500 |
| 10% | Conventional | Yes | $2,400–$3,600 |
| 15% | Conventional | Yes (varies by lender) | $1,200–$2,400 |
| 20% | Conventional | No | $0 |
| 10% | FHA | Yes (11-year limit) | $2,400–$2,700 |
| 5% | FHA | Yes (life of loan) | $2,700–$3,000 |
These figures vary by lender, credit score, and current mortgage rates. Use them to compare the cost of PMI against your other options, not as exact quotes. Your lender will provide a Loan Estimate within three business days of your application, showing your actual PMI cost.
How to remove PMI once you have built equity
On a conventional loan, you can request PMI removal once you reach 20% equity in the home. Equity builds two ways: through monthly payments that reduce your loan balance, or through home appreciation that increases the home's value. If you bought at $300,000 with 10% down ($30,000), you need the loan balance to drop to $240,000 (20% equity). At a typical payment schedule, this takes 5 to 7 years, though extra principal payments can speed it up.
Your lender is required by law to remove PMI automatically when you reach 22% equity, but you can request it earlier. You will likely need a new appraisal to prove the home's current value, which costs $300 to $500. If the home has appreciated significantly, the appraisal may show you have already crossed the 20% equity threshold even if your loan balance suggests otherwise. Some lenders waive the appraisal fee if you refinance instead of requesting removal, so compare both routes.
Comparing the cost of PMI against waiting to save more
Deciding whether to buy now with PMI or wait to save 20% down is a math problem with a personal answer. If you put 10% down on a $300,000 home at 7% interest, PMI might add $250 per month. Over five years, that is $15,000 in PMI alone. If you wait two more years to save the extra 10%, you might miss out on home appreciation—if the home appreciates 3% per year, it could cost $32,000 more in two years. You also continue paying rent, which builds no equity.
The break-even point depends on local appreciation rates, your rent versus your mortgage payment, your credit score, and how long you plan to stay. A financial advisor or mortgage lender can model both scenarios for your specific situation. The key is not to assume PMI is always bad—it is a cost that may be worth paying to buy sooner, or it may be worth avoiding if you can save the difference in a reasonable timeframe.
Frequently Asked Questions
Can I avoid PMI with a down payment between 10% and 20%?
Some lenders allow it if your credit score is 740 or higher and your debt-to-income ratio is below 43%. Ask your lender directly, because policies vary. You may also combine a smaller down payment with a co-signer or a larger loan amount to meet their requirements.
What happens to PMI if my home value drops?
PMI stays on your payment based on your original loan amount, not the current value. If your home loses value, you cannot remove PMI by reaching 20% equity through appreciation. You can still remove it by paying down the principal, or by refinancing if rates and your credit score allow it.
Is PMI tax-deductible?
PMI paid on loans taken out after 2006 may be deductible if your modified adjusted gross income is below a certain threshold (the limit varies by year). Consult a tax professional to see if you may have access to. This deduction is not automatic—you must claim it on your tax return.
Can I remove PMI early if I make extra payments?
Yes, if you pay down your principal faster and reach 20% equity ahead of schedule, you can request PMI removal. Some lenders require you to have paid on time for at least two years before they will consider the request. Check your loan documents or call your servicer to confirm their policy.
Should I choose FHA or conventional if I can only put 10% down?
Conventional is usually better if your credit score is 640 or higher, because PMI ends at 20% equity. FHA MIP lasts 11 years with 10% down, which costs more over time. FHA makes sense if your credit is lower or you need a larger loan relative to your income, because FHA has more flexible requirements.