The Truth About PMI (Private Mortgage Insurance)
The Truth About PMI (Private Mortgage Insurance)
What it actually costs, why FHA loans have it built in, and exactly when you can get rid of it — plus what buyers across the country really put down.
PMI (private mortgage insurance) is a monthly charge on a conventional loan when you put down less than 20%. It protects the lender, not you, and typically runs about 0.46%–1.5% of the loan per year—often less than buyers expect. FHA loans have their own built-in version called MIP, which is required on every FHA loan and, with less than 10% down, lasts the life of the loan unless you refinance. Conventional PMI can come off: you can request removal at 20% equity, it ends automatically at 22%, and if you’re counting on your home’s appreciation, some loans require 25% equity. Nationally, the median down payment is 10% for first-time buyers and 23% for repeat buyers.
PMI has a bad reputation. Say the letters “P-M-I” to a buyer and they picture a huge, permanent, pointless fee. The truth is more boring and, honestly, more reassuring: it’s a cost you can plan for, in many cases it’s smaller than you’d guess, and on a conventional loan it isn’t forever.
In our own home purchase, PMI added about $75 a month to the payment. Not nothing, but a long way from the horror stories. Here’s what PMI really is, how it differs from the mortgage insurance built into FHA loans, what buyers nationally are actually putting down, and exactly when it can come off. And if you’re still early in the journey, my walkthrough of the home buying process in Vancouver, WA shows where mortgage insurance fits in.
What Is PMI, and Who Does It Actually Protect?
Hint: it’s not you
Private mortgage insurance is a policy that protects your lender if you stop making payments. It does nothing for you directly—but it’s the reason lenders are willing to approve a loan with a smaller down payment. Without it, most lenders would want to see 20% down before they’d lend.
On a conventional loan, lenders generally require PMI whenever you put down less than 20%. You usually pay it as a monthly add-on to your mortgage payment, and it’s priced on your credit score, your down payment, and your loan size.
The trade-off is simple: PMI lets you buy sooner instead of spending years saving a full 20%—in exchange for a monthly cost that, on a conventional loan, you can eventually remove.
What Does the Typical Buyer Actually Put Down?
Nationally, far less than 20% for first-time buyers
These figures come from the National Association of REALTORS® 2025 Profile of Home Buyers and Sellers, the most recent edition, covering purchases from July 2024 through June 2025. They’re medians, meaning half of first-time buyers put down even less than 10%.
The takeaway: a 20% down payment is the exception for first-time buyers, not the rule. Repeat buyers can clear 20% far more easily—they’re often using equity from a previous home, and roughly 3 in 10 paid all cash. Among first-time buyers, 59% relied on personal savings for their down payment, and about 28% used an FHA loan. In other words, if you’re buying with less than 20% down, you are in very good company—and that’s exactly when mortgage insurance comes into the picture. If that’s you, my guide for first-time home buyers in Vancouver, WA covers the rest of what to expect.
How Much Does PMI Actually Cost?
Less than most people assume
PMI typically costs about 0.46% to 1.5% of your loan amount per year, according to the Urban Institute’s Housing Finance Policy Center, as summarized by Experian. Your credit score is the biggest lever: borrowers with scores of 760 or higher can land near the bottom of that range, while scores in the 620–639 range can land near the top. Your down payment and loan size matter too.
To estimate your monthly PMI, multiply your loan amount by the PMI rate, then divide by 12. To see how it fits into your total monthly payment, plug your own numbers into my Vancouver, WA mortgage calculator.
Ours was about $75 a month. That’s a real number from a real purchase—and a good reminder that PMI can be smaller than you think. Yours could land higher or lower depending on your credit, down payment, and loan size, which is exactly why getting pre-approved early pays off: it’s the easiest way to get an actual PMI quote from a lender before you rule out a smaller down payment.
FHA Loans: The Mortgage Insurance Is Built In
Technically it’s called MIP—and you pay all of it
On an FHA loan, the insurance isn’t “private” at all—it’s the FHA’s own mortgage insurance premium (MIP). Many people still call it PMI, but the rules are different, and the biggest difference is this: it’s built into every FHA loan, and you can’t opt out of it by choosing a bigger down payment the way you can on a conventional loan.
FHA mortgage insurance has two parts:
How long do you pay it?
There’s no request-it-away option like conventional PMI has. With less than 10% down, the practical way out is to refinance into a conventional loan once you have enough equity. FHA premium rates are set by HUD and can change, so confirm current numbers with your lender.
Conventional PMI vs. FHA MIP, Side by Side
The differences that actually change your costs
| Conventional PMI | FHA MIP | |
|---|---|---|
| When it applies | Less than 20% down | Every FHA loan |
| Upfront cost | Usually none (monthly PMI) | 1.75% of the loan |
| Typical annual cost | About 0.46%–1.5% of the loan | Typically 0.55% (range of roughly 0.15%–0.75%) |
| What sets the price | Credit score, down payment, loan size | Loan size, term, and down payment |
| Can it come off? | Yes—at 20% equity (request) or 22% (automatic) | Only after 11 years with 10%+ down; otherwise refinance |
Which one costs less depends heavily on your credit score and down payment, so ask your lender to price both side by side. The bigger question is usually how long you’ll be paying it—a conventional loan lets you remove PMI; an FHA loan with less than 10% down generally doesn’t.
How and When Can You Get Rid of PMI?
The 20%, 22%… and 25% rules, explained
Here’s the part that trips people up: depending on your situation, your mortgage company may want you to reach 25% equity before they’ll remove PMI. That’s not a typo—but it isn’t the only rule either. There are three paths off a conventional loan’s PMI:
That third path is where the 25% number comes from, and it’s the one many homeowners run into when they’re hoping to drop PMI early. Servicers can also have their own requirements, you’ll typically pay for the appraisal, and these rules apply to borrower-paid PMI on conventional loans.
Your simple game plan
Ways to Reduce or Avoid Mortgage Insurance
A few levers worth knowing before you apply
And one more perspective worth keeping in mind: waiting years to save a full 20% isn’t free either—you’re still paying rent, and prices and rates keep moving—here’s a closer look at mortgage rates in 2026 and whether to buy now or wait. For some buyers a modest PMI payment is the cheaper path; for others, waiting makes sense. It’s a math problem, which is why I’d run your actual numbers with a lender before deciding.
Buying a Home in Vancouver, WA? Start Here
Frequently Asked Questions
PMI, FHA mortgage insurance, and down payments
What is PMI (private mortgage insurance)?
How much does PMI cost?
Is PMI the same as FHA mortgage insurance?
How long do you pay FHA mortgage insurance?
When can I get rid of PMI on a conventional loan?
Do I have to put 20% down to buy a house?
What is the average down payment on a house?
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Cassandra Marks
Realtor, Licensed in OR & WA License ID: 201225764
Realtor, Licensed in OR & WA License ID: 201225764