The Quick Read: You avoid PMI by getting your loan to 80% of the home’s value or less at closing. That is the only test that matters. A bigger down payment gets you there, and so can a piggyback second loan or lender-paid insurance, though each has a catch. Many first-time buyers on a 97% loan take PMI for a while and plan its removal instead.
PMI stands for private mortgage insurance. It is a policy that pays the lender if you stop paying and the home sells for less than you owe. You pay the premium. The lender gets the protection. That is the whole bargain, and it explains why lenders only ask for it when the loan is a bigger share of the home’s value.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
This article walks through how the 80% test works, the routes around it, where those routes break, and how to decide whether avoiding PMI is even the right goal for your file.
What PMI Is and Why First-Time Buyers Meet It
PMI is required when your loan is more than 80% of the home’s value. The CFPB explains that you might have to buy it on a conventional loan when your down payment is under 20%, and that it protects the lender, not you.
This is not a lender whim. Fannie Mae’s Selling Guide says a conventional first mortgage above 80% loan-to-value needs mortgage insurance, unless the lender uses another approved form of credit enhancement. Loan-to-value (LTV) is your loan amount divided by the home’s value. A 90% LTV means you borrow 90% and put 10% down. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Here is where first-time buyers land. Across the wholesale programs Lendmire places files with, a conventional purchase on a one-unit primary home can go to 97% LTV (3% down) when at least one borrower is a first-time buyer. That means no ownership interest in a residence in the previous three years. Without a first-time buyer, the standard limit is 95% LTV (5% down). Both sit well above 80%, so both carry mortgage insurance. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Put plainly: the programs built for low down payments are the same ones that bring PMI. Avoiding it means choosing a different structure, and that choice has costs of its own.
If you want the lender-side detail, Lendmire’s conventional loan programs page lays out the options a broker can arrange.
Should You Avoid It at All?
Not always. Avoiding PMI is a means to an end, and the end is a payment you can carry with cash left in the bank. Plenty of buyers put every spare dollar into a bigger down payment, then close with nothing left for repairs or a rough month.
Think about it as three costs competing for the same money:
- The down payment, which cuts PMI.
- Closing costs, which you owe regardless.
- Reserves, meaning cash left after closing.
A buyer who drains savings to hit 80% LTV avoids a monthly premium but may be one broken water heater from trouble. A buyer who puts 3% down pays PMI, keeps a cushion, and can often get the premium removed later. Neither choice is wrong. The CFPB itself notes that mortgage insurance lets you qualify for a loan you might not otherwise get, at higher cost.
There is also the cost of waiting. Renting while you save the last stretch of a down payment has its own price, and home values may move while you wait. This one’s a genuine toss-up for many buyers. The deciding factor is usually how thin your reserves would become, not how annoying the premium feels.
Published typical annual premiums run from 0.58% to 1.86% of the loan balance. That is a range for context, not a quote. Where you land depends on your credit score, your LTV, and the loan structure.
Route One: Reach 80% LTV at Closing
Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The cleanest way to avoid PMI is to borrow no more than 80% of the home’s value. No insurance, no later paperwork, no cancellation request.
On a purchase, the value is the lower of the price and the appraisal. This catches people off guard. A high appraisal does not help you. A low appraisal hurts. Say you contract to buy and put 20% down, and the appraisal comes in below the price. Your loan is now more than 80% of the appraised value, and PMI can return. A small shortfall can flip the whole result. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
How do you reach 80%?
- Savings. The simplest source, and the one lenders understand best.
- Gift funds. Many conventional programs allow gifts from eligible donors, with documentation that it is a true gift and not a loan. Allowed sources and paperwork vary by lender guidelines and full file review.
- Down payment assistance. State and local programs may help close the gap. Terms differ a lot, so ask early.
- A lower-priced home. Sometimes the fix is a smaller purchase, not a bigger check. A starter home that fits your savings can put you at 80% when the dream home would not.
Your credit and debt load still matter at 80% LTV. The wholesale conventional programs start at a 620 decision score, and the automated underwriting finding governs most files, with a total debt-to-income ceiling of 50%. Those are the program limits. Your own file may need more than the minimum.
Route Two: The Piggyback Second Loan
A piggyback structure splits your financing into a first mortgage at or below 80% and a smaller second loan behind it. The first loan drives the PMI test, so keeping it at 80% LTV or lower means no mortgage insurance on that loan. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Fannie Mae’s subordinate financing rule allows a second lien behind a Fannie Mae first, if it is documented by a note, recorded, clearly subordinate, and disclosed to the appraiser and the mortgage insurer. The lender counts every lien when it checks combined LTV, so the total cannot exceed the program’s cap.
Here is the catch. You now have two loans. Think through what that means:
- Two payments. You qualify with both in your ratios.
- Different terms. The second loan often prices differently from the first, and some carry adjustable terms.
- A lien in the way. The CFPB lists “no junior liens” as a condition for requesting PMI cancellation. With a piggyback and no PMI, that is moot. But a second lien matters later if you refinance or hit other tests.
Whether a piggyback beats paying PMI depends on how the second loan is priced and how long you will keep the home. It is not a free pass. Some buyers come out ahead. Others swap one cost for another that is harder to remove.
Route Three: Lender-Paid Mortgage Insurance
Lender-paid mortgage insurance (LPMI) removes the PMI line from your bill, but not the cost. The lender buys the policy and recovers the expense through the loan’s terms, usually a higher interest rate than you would have with borrower-paid PMI.
The CFPB’s examination procedures draw the key distinction. LPMI cannot be cancelled by the borrower or terminated automatically under the Homeowners Protection Act. Borrower-paid PMI can.
That is the central tradeoff. With borrower-paid PMI, the cost ends when your balance falls far enough. With LPMI, the cost sits in the loan for as long as you keep it. If you plan to stay a short time, LPMI can make sense. If you plan to stay a decade, the permanent cost may outweigh the convenience. Often the way out is a refinance, which brings its own closing costs.
Route Four: Wait, Then Remove It
You can also take PMI now and get rid of it later. For a first-time buyer on a 97% or 95% loan, this is a realistic path. It keeps cash in your pocket today and builds toward removal.
Two thresholds apply under the Homeowners Protection Act:
- At 80% of the original value, you can request cancellation in writing. You need a good payment history, no subordinate liens, and no decline in the home’s value.
- At 78%, the servicer must terminate the insurance automatically, as long as you are current.
The CFPB explains these conditions and notes that removing PMI when you have the legal right lowers your monthly costs. Notice the word “original.” These tests run off the value when you bought, not what the home is worth today. Automatic termination does not happen at 80%. At 80% you have to ask.
There is a second path based on current value. If your home has risen in value, you may be able to ask the servicer to remove PMI based on a new valuation, but that route has its own seasoning and LTV tests, and the servicer sets the process. Check the servicing rules with your loan servicer before counting on it.
For a deeper walk-through, see Lendmire’s piece How to Remove PMI Early as a First-Time Buyer on a Conventional Loan.
Which Route Fits Which Buyer
| Route | Cash needed upfront | Monthly effect | Long-term tradeoff |
|---|---|---|---|
| 80% LTV at closing | High | No PMI | Thin reserves possible |
| Piggyback second loan | Moderate | Two payments | Second lien, different terms |
| Lender-paid insurance | Low | No PMI line | Cost stays in the loan |
| Take PMI, remove later | Lowest | PMI until removal | Must meet cancellation tests |
A few patterns show up when arranging these files:
- Buyers with strong savings and stable income tend to prefer the 80% route.
- Buyers with solid income but little cash often take the 97% program and plan removal.
- Buyers planning a short stay look hardest at lender-paid insurance.
- Buyers who like the idea of a piggyback should price both loans side by side on the Loan Estimate before choosing.
That last point matters. Ask for the same loan with PMI, and again with the alternative, and compare the full terms line by line.
Where the Rules Break
Reduced coverage is not “no PMI.” Programs like HomeReady and Home Possible lower the required coverage amount, which can mean a smaller premium. They do not remove PMI. They also carry an income limit of 80% of area median income. The insurance on those programs still cancels under the same rules.
High-risk loans. The CFPB’s procedures note that the 80% and 78% rights do not apply to loans classed as “high risk,” though final termination at the loan’s midpoint still does.
Interest-only, balloon, or forbearance loans. The CFPB says the midpoint standard is more likely to apply to these. Check the structure before assuming standard cancellation.
An appraisal that comes in low. A shortfall at closing can push your LTV above 80% and bring PMI back, or move you into a higher coverage band.
Occupancy. This article assumes a home you will live in. Occupancy decides leverage, so a second home or rental follows different limits than a principal residence.
Government-backed loans. FHA and USDA loans typically carry their own mortgage insurance, and it does not always behave like conventional PMI.
A First-Time Buyer’s Action Checklist
Use this before you apply and while you shop:
1. Know your credit score. A higher score generally helps your premium and your options. Check it well before you apply.
2. Decide your reserve floor. Pick the cash you want left after closing. Then see how close that leaves you to 80% LTV.
3. Ask about gifts and assistance. Learn the documentation rules early so nothing stalls your file.
4. Request side-by-side Loan Estimates. Compare the PMI version and the avoid-PMI version. Look at total cost over the time you expect to keep the home.
5. Ask how long you will keep the loan. A short stay and a long stay point toward different structures.
6. Keep your PMI disclosure. The CFPB says the first cancellation request date should appear on it.
7. Track your balance. Mark the date you hit 80% of original value and send your written request.
Key Terms Defined
PMI (private mortgage insurance): A policy you pay for that protects the lender if you default on a conventional loan with a small down payment.
LTV (loan-to-value): Your loan amount divided by the home’s value, shown as a percentage.
Piggyback loan: A second mortgage taken alongside the first so the first loan stays at or below 80% LTV. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
LPMI (lender-paid mortgage insurance): Insurance the lender buys and recovers through the loan’s terms, which you cannot cancel on your own.
Original value: The lower of the purchase price and appraisal at closing, which is the basis for the PMI cancellation tests.
Servicer: The company that collects your payments and handles your PMI cancellation request.
Frequently Asked Questions
Can I put down less than 20% and still avoid PMI?
Yes, but only with a structure that changes how the insurance is handled. A piggyback second loan keeps the first mortgage at 80% LTV or lower. Lender-paid insurance removes the visible premium but builds the cost into the loan. Neither makes the risk disappear, and each has tradeoffs you should compare on your Loan Estimate. Final terms depend on lender guidelines and a full file review.
Is it better to put down 20% or pay PMI?
Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
It depends on your reserves and how long you plan to stay. Twenty percent down means no PMI, but it can drain your cash. Paying PMI on a smaller down payment preserves savings, and borrower-paid PMI can be removed once your balance reaches the cancellation thresholds. Some first-time buyers choose the smaller down payment on purpose.
Does PMI drop off automatically at 80%?
No. At 80% of the original value you must request cancellation in writing and meet the conditions, including a good payment history and no junior liens. Automatic termination comes at 78%, and only if you are current on payments. Mark the 80% date and make the request yourself.
Do HomeReady and Home Possible mean no PMI?
No. Those programs reduce the required coverage, not eliminate it. They are also income-limited, at 80% of area median income. The insurance on them still cancels under the same rules as standard PMI, subject to lender guidelines.
Does a higher appraisal later remove PMI?
Not automatically. The standard cancellation tests run off original value, so a higher appraisal mainly shows your home has not lost value. A separate current-value removal route exists under Fannie Mae’s servicing rules, with its own seasoning and LTV tests. Ask your servicer what applies to your loan.
Next Step
If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB: What Is Private Mortgage Insurance
2. Fannie Mae Selling Guide B7-1-01
3. CFPB: What Is Mortgage Insurance and How Does It Work
4. Fannie Mae Selling Guide B2-1.2-04 Subordinate Financing
5. CFPB – Homeowners Protection Act examination procedures
6. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How the HPA Schedule Ends PMI on a Conventional Loan · Escrow Waiver vs Escrow Account for a Conventional Loan Buyer · How a Conventional Loan Decides If a First-Time Buyer Pays PMI
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.