PMI and FHA mortgage insurance, explained
Mortgage insurance is what lets you buy with less than 20% down. It protects the lender, not you — and on a conventional loan, it doesn't last forever.
What mortgage insurance is
When you borrow more than 80% of a home's value, the lender takes more risk. Mortgage insurance covers part of the lender's loss if the loan defaults. You pay the premium; the lender is the beneficiary. It does nothing for you if you lose your job or the house is damaged — that is a different kind of insurance.
Conventional loans use private mortgage insurance (PMI). FHA loans use the government's mortgage insurance premium (MIP). VA loans have no monthly mortgage insurance but usually a one-time funding fee; USDA loans have their own guarantee fees.
What PMI costs
PMI is priced by the mortgage insurer and depends mainly on your credit score, your down payment and the loan type. It is most commonly paid monthly as part of your mortgage payment; some lenders offer single-premium or lender-paid options that trade a monthly charge for an upfront cost or a higher rate. Your Loan Estimate shows the figure — compare it across lenders.
How PMI comes off a conventional loan
Under the federal Homeowners Protection Act, on most conventional loans for a primary residence:
- You can request cancellation once your balance is scheduled to reach, or you have paid it down to, 80% of the original value (the lower of the price or the appraisal at purchase), if you are current, have a good payment history, and meet the lender's requirements — which can include showing the value hasn't fallen.
- PMI terminates automatically when the balance is scheduled to reach 78% of the original value, as long as you are current on payments.
- It must end by the midpoint of the loan term in any case, if you are current.
Getting there faster
Extra principal payments bring the 80% date forward. Many lenders will also consider removing PMI based on a new appraisal if the home has gained value — each lender sets its own rules on how long you must have owned the home and what value is required. Ask your servicer what they need.
FHA mortgage insurance works differently
FHA loans charge an upfront mortgage insurance premium, usually financed into the loan, plus an annual premium paid monthly. How long the annual premium lasts depends on your down payment and loan term under current FHA rules — on many low-down-payment FHA loans it lasts for the life of the loan, which is why some FHA borrowers later refinance into a conventional loan to drop it. Your lender can tell you the rule for your loan. See FHA loans in Georgia.
Is it worth paying PMI?
Often, yes. Saving to 20% down can take years, during which prices and rents move. Mortgage insurance is the cost of buying sooner. Compare it with what you are paying in rent and what you would gain by owning earlier. See rent vs buy in Atlanta and conventional loan down payments.
Other routes around PMI: VA loans for eligible veterans and service members, down payment assistance, or an assumable loan where the seller's loan already has its terms set.
Worked example: when your PMI comes off
You buy for $350,000 with 5% down, a $332,500 loan. The original value is $350,000, so 80% is $280,000 and 78% is $273,000. Your amortization schedule shows the month your scheduled balance reaches each figure; that is when you may request cancellation and when it must end automatically. Paying an extra amount toward principal each month moves the 80% date forward, and you can then request cancellation on your actual balance.
| Milestone | Balance on a $350,000 original value | What happens |
|---|---|---|
| 80% of original value | $280,000 | You may request cancellation |
| 78% of original value | $273,000 | Automatic termination if current |
| Midpoint of the loan term | Whatever the balance | Must end if current |
Questions to ask your lender
- What is my monthly PMI, and is it priced on my exact credit score?
- Would a single-premium or lender-paid option cost less over how long I expect to keep the loan?
- On what date does my schedule reach 80% and 78% of original value?
- Will you remove PMI on a new appraisal, and after how many years of ownership?
- If FHA, how long will the annual MIP last on my loan?
Common questions
How do I get rid of PMI?
On most conventional loans you can request cancellation when your balance reaches 80% of the original value, and it ends automatically at 78% if you are current. Some lenders also remove it based on a new appraisal.
Does FHA mortgage insurance ever go away?
It depends on your down payment and loan term under FHA's rules. On many low-down-payment FHA loans the annual premium lasts for the life of the loan unless you refinance. Ask your lender.
Do VA loans have PMI?
No. VA loans have no monthly mortgage insurance. Most borrowers pay a one-time funding fee instead, and some veterans are exempt.
How much is PMI?
It is priced by the mortgage insurer based mainly on your credit score, down payment and loan type. Your lender's Loan Estimate shows the amount for your loan.
Is it better to wait until I have 20% down?
Not necessarily. Mortgage insurance is the cost of buying sooner. Compare it with your rent and the time it would take to save 20%.
Read next
General information for Georgia home buyers, not legal, tax or lending advice. Loan programs, rates, limits, tax rates and insurance terms are set by lenders, agencies, counties and insurers and change — confirm current figures with them, and have your closing attorney review anything you sign.