If you make a down payment of less than 20% on a home purchase, you may have to pay private mortgage insurance (PMI) or another form of mortgage insurance. This is in place to safeguard the lender in the event you default on your mortgage loan.
Fortunately, mortgage insurance can be removed under the right circumstances.
Automatic PMI Cancellation
PMI is a form of insurance protection for your mortgage lender that you will be required to pay if you put down less than 20% on a conventional mortgage loan backed by Fannie Mae or Freddie Mac. This insurance safeguards the lender in case you can’t repay your mortgage and default on the loan. Keep in mind that lenders may have their own credit score and eligibility requirements — Refi.com requires a minimum credit score of 620 for conventional purchase loans and 620 for conventional refinances.
Your loan-to-value (LTV) ratio and the size of your down payment will help determine if and when PMI can be eliminated. LTV indicates your mortgage loan amount versus the appraised value of your home.
Let’s say you make a 10% down payment on a home purchase. That means your LTV ratio is 90%.
Most lenders prefer an LTV of 80% or less, but will still let you borrow funds if you meet other requirements — though conventional loan lenders will require that you pay PMI until your LTV improves.
Once your LTV reaches 78% (which typically means you’ve built 22% equity in your property), PMI will be automatically eliminated from your conventional loan.
Note that your LTV can also decrease — getting you closer to removing PMI — if your home appreciates in value, which can occur through effective home improvements.
Requesting PMI Cancellation
Once you’ve built up enough equity in your home — typically when your LTV ratio reaches 80% based on your original purchase price — you can formally request that your lender cancel your PMI.
Start by contacting your mortgage servicer’s customer service department to ask about their specific PMI cancellation process. Most servicers will require a written request, so be prepared to submit a simple letter or complete their online form. In your request, include your loan number, current balance, and a statement that your LTV has reached the eligible threshold.
Many lenders also require evidence that your home’s value hasn’t declined. You may need to provide a recent appraisal or a broker’s price opinion showing that your remaining principal balance is no more than 80% of the home’s current market value.
Once your servicer has all required documentation, they’ll review your file and — assuming your account is in good standing (no late payments in the past year, for example) — formally remove PMI within one to three billing cycles.
Refinancing to Cancel PMI
If you’re not yet at the 80% LTV mark based on your original purchase price but want to ditch PMI sooner, refinancing into a new mortgage can be an effective route. First, check current market rates and compare them to your existing rate — if rates have dropped by at least 0.75%–1%, a refinance could not only eliminate PMI but also lower your overall interest cost.
Here are the steps to follow:
- Run the numbers: Calculate your current loan balance and estimate your home’s present market value (via an online estimate or a formal appraisal). If your balance is 80% or less of today’s value, you qualify to refinance without PMI.
- Choose the right loan type: Refinancing with a conventional mortgage is the most common route for PMI elimination, because FHA refinance rules still require mortgage insurance premiums (MIP).
- Prepare documentation: Just like your original mortgage, you’ll need to submit income verification, credit information, and proof of homeowners insurance. You’ll also need an appraisal to confirm your LTV — or negotiate to use a recent one if your lender accepts it.
- Lock in your rate and close: Once you’ve selected a lender and locked in your rate, you’ll go through underwriting and closing. At closing, your new loan pays off the old one — and because your LTV is now verified at 80% or less, no PMI premium will be added to your monthly payments going forward.
Differences Between PMI and Other Types of Mortgage Insurance
PMI specifically applies to conventional mortgage loans not backed by the federal government. But some government-backed loans also require recurring fees and mortgage insurance.
FHA Loan MIP
Borrowers opting for an FHA loan are required to pay an upfront mortgage insurance premium (MIP) equal to 1.75% of the loan amount, plus an annual MIP based on the loan size and down payment amount. These are the FHA’s program minimums — private lenders, including Refi.com, may require higher credit scores to qualify. Refi.com requires a minimum credit score of 620 for FHA purchase loans and 620 for FHA refinances.
Unlike PMI, annual MIP does not automatically fall off when the FHA loan reaches a certain LTV. In most cases, the premium is required for the life of the loan. However, if you put down at least 10% on an FHA loan, MIP is only required for the first 11 years, after which it falls off automatically.
USDA Guaranteed Fee
USDA loans — a 0% down option for eligible rural buyers — don’t have a traditional mortgage insurance premium, but they do charge a guarantee fee that functions similarly. You’ll pay a one-time upfront guarantee fee of 1% of your loan amount, plus an annual guarantee fee of 0.35% (paid monthly) over the life of the loan. The USDA does not set a minimum credit score, but individual lenders apply their own requirements. Refi.com requires a minimum credit score to qualify — speak with a loan specialist for current guidelines.
VA Funding Fee
VA loans — another 0% down option — don’t charge PMI or any other form of ongoing mortgage insurance. However, most borrowers pay a one-time funding fee of between 0.5% and 3.30% of the loan amount (though some VA borrowers are exempt). Like USDA loans, the VA does not set a minimum credit score, but individual lenders apply their own requirements. Refi.com requires a minimum credit score to qualify — speak with a loan specialist for current guidelines.
The Bottom Line
It’s important to weigh the pros and cons of any PMI elimination strategy. You can eventually remove PMI by paying extra toward your principal, making effective home improvements that increase your home’s value, or refinancing into a new loan once you’ve built sufficient equity.
Before you decide, run the numbers: compare your remaining balance against current home values, factor in closing or appraisal fees, and calculate how long you’ll need to hold your new rate to recoup any refinance costs. If you’re on solid financial footing — with a strong payment history and stable income — dropping PMI can deliver meaningful long-term savings.
Ready to refinance and leave PMI behind for good? See if you qualify for a lower rate at Refi.com or start your application today.
