PMI stands for Private Mortgage Insurance. It protects the lender — not you — if you default. And you pay for it every month. Here's how it works and how to get out of it.
When do you pay PMI?
On conventional loans, PMI is required when your down payment is less than 20% — meaning your loan-to-value (LTV) ratio is above 80%. It's an added monthly cost on top of your principal, interest, taxes, and insurance.
How much does it cost?
PMI typically costs 0.3%-1.5% of your loan amount per year, depending on your credit score, LTV, and loan type. On a $300,000 loan, that's $900-$4,500/year, or $75-$375/month. Your credit score matters a lot here — a 760 score at 90% LTV might pay 0.5%, while a 640 score at 95% LTV might pay 1.5%.
How to remove PMI
- Scheduled automatic termination: For many covered conventional loans, the servicer generally terminates borrower-paid PMI when the scheduled balance reaches 78% of original value, if payments are current. Midpoint and special-loan rules can differ.
- Original-value request: For many covered conventional loans, 80% using the legally defined original value is a request threshold—not approval. Payment history, current status, liens and property-value requirements also apply.
- New appraisal: If your home has appreciated, you can order a new appraisal to prove your current LTV is low enough to remove PMI even if you haven't paid the balance down that far. But the threshold is stricter than the 80% figure above: under Fannie Mae/Freddie Mac rules, a new-appraisal request needs your current LTV at 75% if your loan is between 2-5 years old, and only opens up to 80% once the loan is 5+ years old. You'll also need a clean payment history (no 30-day-late in the last 12 months) and the appraisal has to be ordered through your servicer, not one you commission yourself.
- Refinance: If rates drop or your equity has grown, refinancing into a new conventional loan without PMI is an option.
Use Lighthouse’s guided PMI Removal Check first. Your servicer must identify the applicable investor/program rules, acceptable valuation process, scheduled automatic-termination date, and any remaining requirements.