What is PMI & How Do You Avoid It?

For many Americans, home ownership is the ultimate dream. Yet with rising house prices and a standard requirement of a 20% down payment, you might believe that you can’t buy a house. Thankfully, there are options if you don’t have extra cash on hand for a down payment, including PMI.

PMI, or private mortgage insurance, is required by most lenders if you do not have a 20% down payment for a house. Because it means paying an additional amount each month, many people want to avoid PMI. Our Tampa real estate agents can help you evaluate your options for doing so, including exploring other loan types or considering less expensive houses. 

Eaton Realty is dedicated to helping Hillsborough County residents buy a home. We help clients throughout the Greater Tampa area navigate the house-hunting process. If you’d like to learn more about your options for buying a home (with or without PMI), contact us today.

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What Is PMI?

Private mortgage insurance, or PMI, is a type of mortgage insurance. It is typically required by the lender when a person purchases a house with less than a 20% down payment. PMI may also be required for a refinance if a homeowner has less than 20% equity in the home.

Banks require PMI in these situations as a way to protect their own investment. The insurance is provided by a private company for the benefit of the lender. If you fail to pay your mortgage, the bank will be covered through PMI. It will not protect you as the homeowner if you fall behind on your loan payments. You can still lose your home through foreclosure if you have PMI.

If you have less than 20% to put down on a house, then a bank will usually inform you that you are required to pay for PMI to qualify for a mortgage. In most cases, the PMI will be paid through a monthly premium. The premium amount will be added to your monthly mortgage payment (often along with other costs associated with home ownership, such as property taxes).

PMI Rates

For a conventional mortgage, PMI rates range from 0.58 to 1.8% of the original loan amount. The rate will be based on a number of factors, including your credit score, the amount of your down payment, the size of your loan, and your debt-to-income ratio. When the rate is determined by the insurance company, you will owe that amount each year until you reach 20% equity.

For example, consider a situation where you purchased a house for $275,000 on a 30-year mortgage with a 10% down payment ($27,500). You have a high credit score and a good debt-to-income ratio, so you get a low PMI rate of .58%. You will pay a monthly PMI of $120, paying $10,632 in total until you reach 20% equity in the home. 

This rate can vary considerably based on your unique financial situation. You may also be required to pay it in a different way, such as in a one-time premium at closing or through both a premium at closing and monthly payments.

It is important that you understand exactly what you are agreeing to when you sign your mortgage paperwork. You should always check your Loan Estimate and Closing Disclosure (in the Projected Payments section of page 1). This will inform you exactly how much you will pay both at closing and in monthly loan payments (including any required PMI).

PMI is an added expense for many homeowners that can significantly increase their initial costs of buying a home. That being said, it can make it possible for a person to buy a house even if they aren’t able to save up a down payment of 20% or more. In high-cost-of-living areas, PMI might be the best way to purchase a home and start building equity.

When PMI Payments End

As noted above, PMI is not forever. The bank only requires this insurance until you have reached 20% equity in your home, which is an indication that you are not as much of a “risk” in terms of the bank’s investment in you. If you bought a home for $300,000 with $30,000 down, then you would only pay the PMI until you have paid $30,000 of the loan principal (with your down payment, that would give you $60,000 in equity, or 20% of the value of your home). 

Of course, your monthly mortgage payments don’t just go towards the principal because you’ll also be paying interest. Carefully check your mortgage documents and monthly statements to determine where you stand in terms of equity. You may even choose to make extra payments if you can afford it, to hit that 20% mark sooner.

How Can I Avoid PMI?

PMI is an additional expense that can make it more costly to own a home. Most people would prefer not to pay PMI, since it isn’t going towards equity or protecting you as a homeowner. Fortunately, there are ways to avoid paying PMI.

Save Up For A 20% Down Payment Before House Hunting

The first option is the most obvious: wait to buy a house until you have saved up enough to make a 20% down payment. Alternatively, you might want to adjust your budget to look at houses in a lower price range. If you have saved $50,000, for example, you might choose to look at houses for $250,000 or less - or wait to buy a house until you have set aside more money.

Keep in mind that home prices will affect the amount of down payment that you will need and whether or not you will require PMI. If housing prices are rising in your market, then you will need a larger down payment to avoid PMI. In this situation, it might make more sense to buy a house and start to build equity. Your Tampa Realtor can talk you through your options based on their experience with the local housing market and understanding of current market trends.

Explore Alternative Financing Options

If you don’t want to wait to buy a house, a second option is to talk to your lender about other options. A bank may offer you a loan with a smaller down payment and no PMI. Typically, the interest rates for these loans are higher than what you might pay with PMI. You will need to do the math - or analyze the loan disclosures - to figure out if a loan with a higher interest rate would be more or less expensive than paying for PMI.

You should also talk to an accountant or a financial advisor about how this type of loan will impact your taxes. Right now, PMI is not tax-deductible - but you can deduct mortgage interest. Taking taxes into account, it might make more financial sense to take out a loan with a higher interest rate than to pay for PMI.

Consider An 80-10-10 Loan

Another potential option is to try to get an 80-10-10 loan. Also known as a “piggyback” loan, it involves taking out 2 mortgages. If you can make a 10% down payment, then the first loan will cover the other 10% of a 20% down payment. The second loan - for 80% of the home’s purchase price - will finance the house itself.

An 80-10-10 loan will allow you to avoid PMI by hitting the 20% down payment mark. Typically, you will need a high credit score to qualify for a piggyback loan. The interest rate on the down payment loan may also be higher and could be variable (changing over time).

See If You Qualify For A Government-Backed Loan

If you qualify, you might be able to avoid PMI through certain government-backed loans. The U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) both offer loans without a requirement for a 20% down payment and/or PMI. You will have to meet eligibility criteria (such as being a qualifying military service member or veteran, or meeting income thresholds and buying property in a qualifying area). The Federal Housing Administration (FHA) also offers loans with a different type of mortgage insurance.

Finally, if you can’t avoid PMI, you can try to reduce the amount that you will have to pay by improving your credit score. As noted above, your PMI rate is based in part on your credit score and other indicators of financial health. If you get your credit score up, you can reduce the PMI rate significantly, which can save you thousands of dollars. A higher credit score will also help you qualify for a lower interest rate or perhaps an alternative loan, such as the 80-10-10, which can bring your overall costs down.

Removing PMI

As noted above, PMI is not permanent. As you pay down your loan and build equity, it can be removed. When your loan balance is 80% or less of your home’s value, then the PMI requirement will be removed.

Your lender is required to automatically cancel your PMI when you have reached 22% equity or you are halfway through paying off your loan. Alternatively, you can request that your lender cancel the PMI as soon as you reach 20% equity. You may also choose to refinance your loan, which can get rid of PMI if you have 20% equity (and may result in a lower interest rate).

If you want that to happen faster, you can pay extra on your mortgage. There are a few ways to do this, such as making biweekly mortgage payments or adding extra money to your monthly mortgage payments. If you get a windfall, such as a tax return or an unexpected inheritance, you could pay that towards your loan balance.

If housing prices have increased in your neighborhood, you could also consider having your home reappraised. If your house has increased in value, then the equity percentage will likely increase as well. This might get you to the 20% mark without making extra payments.

For example, you bought a house for $450,000 with 10% down ($45,000) in 2022. During this time, you have paid your mortgage consistently and now owe $375,000 on your mortgage. In 2025, you decide to have your house reappraised. It is now valued at $500,000. With this new value, your equity in the home has increased to 25%. You could use this documentation to request that the bank cancel your PMI.

At the end of the day, PMI can be a way to purchase a home that you might not otherwise be able to buy. It is not forever and can be a good way to start building your financial future. If you are curious about your options when it comes to buying a home in Hillsborough County, we can help you find a house, analyze different mortgages, and make a decision that is right for you.

Looking to Buy a House In Hillsborough County? Give Eaton Realty a Call

Saving up 20% of the purchase price of a house can be daunting. Fortunately, there are ways to buy a house even if you can’t save that amount of money. Whether you go with PMI or a different type of mortgage, our Tampa real estate agents can help you get into the home of your dreams.

Based in Lithia, Eaton Realty represents buyers, sellers, landlords, and renters in a range of real estate matters in West Central Florida. With our diverse experience, we offer house hunters unique insight into the local market. We can also help you explore your options when it comes to different types of mortgages and other ways to avoid PMI. Our ultimate goal is to help you get into the Tampa real estate market in a way that makes sense for you.

If you’d like to learn more, give us a call at 813-672-8022 or fill out our online contact form to talk to a member of our team.