Conventional Loan PMI Rules for Buyers Putting Less Down

The Quick Read: Private mortgage insurance (PMI) is required on a conventional loan when you borrow more than 80% of the home’s value, and it protects the lender, not you. You can buy with 3% down on a one-unit primary home if you are a first-time buyer, or 5% down otherwise. PMI is not permanent. You can ask to cancel it at 80% of the original value, and the servicer must end it automatically at 78%. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

What Is PMI, and Why Does the Lender Want It?

PMI is insurance a private company sells to your lender. If you default and the sale of the home falls short, the insurer pays part of the loss. You pay the premium. The lender gets the protection. Fair or not, that is the trade for lending against a smaller down payment.

In exchange, you can buy sooner. Waiting to save 20% is a real option. So is buying now with less down and letting PMI fall away as you pay the loan down. Neither choice is wrong. It depends on your savings, your timeline, and how long you plan to stay.

Across the wholesale files placed through conventional loan programs, the pattern is steady. Buyers who understand the removal path early treat PMI as a temporary cost, not a surprise.

How Does Your Down Payment Set the PMI Tier?

Your LTV decides whether PMI applies and how much coverage the insurer requires. The loan amount is divided by the lower of the purchase price or the appraised value. A low appraisal pushes your LTV up, even when the price did not change.

For a purchase of a one-unit primary home, the standard conventional programs allow:

• 97% LTV (3% down) with a fixed rate when at least one borrower is a first-time buyer, meaning no ownership interest in a residence in the previous three years.
• 95% LTV (5% down) for other buyers.
• 95% for two- to four-unit primary residences. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Occupancy changes the math. Second homes top out at 90% LTV. Investment property tops out lower still, so owner-occupied buyers get the deepest leverage. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

HomeReady and Home Possible are the low-down-payment versions of these programs. They carry an income limit of 80% of area median income.

The loan also has to qualify beyond the down payment. Wholesale conventional programs start at a 620 decision score. Most files run through automated underwriting, with a total debt ratio ceiling of 50%. Your PMI premium counts as part of the monthly payment in that ratio.

Purchase versus refinance. PMI follows equity, not just down payments. A conventional refinance with less than 20% equity usually needs it too. A rate-and-term refinance can go to 95% LTV on a one-unit primary home, with mortgage insurance above 80%. A conventional cash-out refinance stops at 80% on a one-unit home, so it lands right at the line.

Four Ways to Pay for PMI

Borrower-paid monthly is the common form. The premium rides on top of principal, interest, taxes, and homeowners insurance. The other three structures shift when, or how, you pay.

Lender-paid coverage is not free. The cost is recovered through a higher rate over the life of the loan. For a buyer who may refinance or sell in a few years, a single premium is a bet that you will stay put. It rarely suits a short horizon.

Here is a practical guide. If you expect to build equity or refinance soon, monthly PMI keeps the exit open. If you want the lowest upfront cash, monthly is also the usual fit. A lender-paid structure is worth comparing only when you plan to hold the loan for a long stretch. Ask for each version on your Loan Estimate and compare the full terms.

What Moves Your PMI Cost?

Four things drive the premium: your LTV tier, your credit score, the coverage level, and the loan type. Published typical annual premiums run from about 0.58% to 1.86% of the loan balance. That is a range, not a quote. Where you land depends on your file.

The lender picks the insurer and the coverage level. You do not shop among insurers yourself. Fannie Mae’s Selling Guide sets coverage in LTV bands, with deeper required coverage as the LTV climbs. It also allows a lower minimum coverage option, which adds a pricing adjustment based on LTV and credit score. Coverage percentage is the share of the loan the insurer covers. It is not your premium. Mixing the two up is a common mistake.

What you control before closing:

• Down payment. Moving into a lower LTV band lowers the tier.
• Credit profile. A higher score generally lowers the premium.
• Structure. Compare monthly, split, and lender-paid terms side by side.
• Appraisal. A strong appraisal helps the LTV. A weak one hurts it, and you cannot control it.

Some buyers ask whether a conventional loan with low down and no PMI exists. Sometimes, with specific structures. Lendmire’s piece Self-Employed Mortgage vs. Conventional Loan With Low Down and No PMI walks through that tradeoff.

Key Terms Defined

LTV (loan-to-value): Your loan amount divided by the lower of price or appraised value.

Original value: The lower of the purchase price or the appraised value at purchase. Cancellation dates use this number.

Borrower-paid mortgage insurance: PMI you pay monthly, upfront, or both. It can be removed under the rules below.

Lender-paid mortgage insurance: Coverage the lender pays, usually recovered through a higher rate on the loan.

Amortization schedule: The table of payments showing when your balance is scheduled to hit each percentage of original value.

When Does PMI End? The Three Dates That Matter

Federal law sets a request date, an automatic date, and a final backstop. The CFPB explains that the Homeowners Protection Act covers single-family principal residences on loans closed after the law took effect. The same page lays out the conditions for each date.

To request cancellation at 80%, the servicer needs four things. You must make the request in writing, have a good payment history, certify no junior liens, and show the value has not dropped below the original value. The servicer must grant a request that meets those conditions.

Automatic termination uses the scheduled date, not your actual balance. Extra payments do not move the automatic date. They let you request cancellation earlier. If you are behind on payments when the date arrives, termination waits until you are current.

The CFPB’s examination procedures add one more piece: the final termination date. PMI must end after the midpoint of the loan term if you are current.

Where do you find your dates? Check the PMI disclosure and amortization schedule you received at closing. If the dates are missing or unclear, ask your servicer for them in writing.

A Worked Example

Picture a buyer with 5% down on a one-unit primary home. The loan sits at 95% of the original value, which is the lower of price or appraisal. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

To reach the 80% request point, the balance must fall by 15 percentage points of original value. To reach the 78% automatic point, it must fall by 17. Those are scheduled paydowns. Making extra principal payments gets you to the 80% request point sooner.

Now compare a first-time buyer at 97%. That buyer needs to cover 17 points to request cancellation and 19 points for automatic termination. A bit longer, and a bit more PMI along the way.

Now suppose the home appreciates sharply in the first few years. The automatic date does not move. Statutory triggers use original value. Here is the catch: a higher current value can still help, but only through a separate current-value request, covered next.

Ways to Drop PMI Early

Three paths exist, and they fit different situations.

• Extra principal. Best when you simply want to hit 80% of original value earlier. You still make a written request and meet the payment and lien conditions.
• Current-value cancellation. Best when the home has appreciated or you made substantial improvements. This follows investor rules, not the statute. Freddie Mac’s servicing guide sets a seasoning period and a stricter equity test in the early years, easing after five years. The two-year minimum is waived for substantial improvements.
• Refinance. Best when your equity has grown enough to refinance below the PMI line. This costs closing costs, so the savings have to outrun them.

A valuation is usually needed for the second path, sometimes at your expense. If the value comes back below the original value, the servicer can deny the request. The usual remedies are paying down the balance or verifying value another way. The stronger play might be waiting for the scheduled 80% date over paying for a valuation that may not help. Still, if your area has moved sharply, the valuation can pay for itself.

Where the Rules Break

The general rule has edges. Know them before they cost you.

• Original versus current value. The statute uses original value only. Appreciation-based removal is a servicer policy with seasoning and valuation tests.
• High-risk loans. The 80% request and 78% automatic provisions do not apply to high-risk loans. PMI on those ends at the midpoint if you are current, per the Federal Reserve’s HPA manual cited in the CFPB procedures.
• Two- to four-unit homes. The statute covers single-family principal residences. Investor rules fill the gap for other properties and are generally stricter on current-value tests.
• Second liens. A HELOC or other junior lien can block a cancellation request.
• Late payments. A recent miss can delay both request and automatic termination.
• Single-premium coverage. There is no later removal and generally no refund if you refinance or sell early.
• FHA. FHA uses mortgage insurance premiums, not PMI. It follows different removal rules, and removal may involve refinancing.

Four Myths, Settled

1. “PMI protects me.” It protects the lender. The CFPB’s PMI page says so plainly.

2. “I need 20% down to buy conventional.” No. The numbers above run to 97% LTV on qualifying files, subject to lender guidelines.

3. “PMI is forever.” Not on borrower-paid monthly coverage.

4. “Rising home values end it automatically.” They do not. Only a current-value request can use them.

What the Decision Looks Like in Practice

Here is the order that works. Start with your down payment options at each LTV tier. Ask for monthly, split, and lender-paid versions on your Loan Estimate. Estimate how long you will keep the loan. Then mark your 80% and 78% dates and set a reminder.

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. Every program figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B7-1-02 – Mortgage Insurance Coverage Requirements

2. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan

3. CFPB – Homeowners Protection Act examination procedures

4. Freddie Mac Guide Section 8203.2

5. Federal Reserve’s HPA manual

6. CFPB’s PMI page