The Quick Read: Skipping PMI on a conventional loan comes down to one number: the first-lien loan-to-value ratio. Mortgage insurance is required above 80% LTV, so the clean way to avoid it is to borrow 80% or less of the lower of price or appraised value. Other routes exist, such as a second lien or lender-paid insurance. Each one swaps the PMI line for a different cost, and first-time buyer status does not exempt anyone. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Why Does PMI Exist at All?
PMI exists because of a charter rule, not a lender whim. Fannie Mae’s Selling Guide allows a loan to be sold without mortgage insurance only when LTV is 80% or less at acquisition. Freddie Mac’s Guide sets the same line. Above 80%, the portion over the line needs insurance or another approved credit enhancement.
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.
PMI protects the lender, not you. It is not homeowners insurance, which protects the house. That distinction matters because buyers sometimes treat PMI as a benefit they are paying for. It is a cost of borrowing more than 80%.
So “skipping PMI” means one of three things:
- Get the first-lien LTV to 80% or lower.
- Use an approved substitute, such as lender-paid insurance or a structure with a second lien.
- Accept PMI now and plan to remove it.
Key Terms Defined
LTV (loan-to-value): The first mortgage balance divided by the lower of the purchase price or the appraised value.
CLTV / HCLTV: Combined LTV counts the first lien plus any second lien. The home equity version counts the full credit limit of a HELOC.
PMI (private mortgage insurance): Insurance on a conventional loan above 80% LTV that protects the lender if the loan defaults. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
LPMI (lender-paid mortgage insurance): Insurance where the cost is built into the interest rate instead of shown as a separate monthly line.
Piggyback loan: A second mortgage that fills part of the gap so the first lien stays at 80% LTV or lower. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
DTI (debt-to-income): Your monthly debts, including every mortgage payment, divided by your gross monthly income.
DU (Desktop Underwriter): Fannie Mae’s automated underwriting system, which issues the finding most conventional files run on.
What Does the Conventional Envelope Look Like for a First-Time Buyer?
Across the wholesale programs Lendmire places files with, a first-time buyer can borrow up to 97% LTV (3% down) on a one-unit principal residence with a fixed rate. That requires at least one borrower with no ownership interest in a residence in the previous three years. Everyone else on a primary residence generally tops out at 95% LTV (5% down). Two- to four-unit principal residences also reach 95%. Second homes stop at 90%, and investment property drops lower. Occupancy decides the leverage.
The credit floor on the wholesale conventional programs starts at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45% depending on reserves and score factors. All of this is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Two program notes help. HomeReady and Home Possible carry an income limit of 80% of area median income, and they do not require first-time status. The 97% option does. Fannie Mae’s 97% LTV FAQ confirms that those options require DU, a fixed rate, and a one-unit principal residence. Lendmire’s conventional loan programs page covers the wider menu. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
How Is the Loan Underwritten, Step by Step?
The sequence matters because the PMI outcome gets set in the middle of it, at the appraisal. Here is how a file runs.
1. Pick the structure. Borrower-paid monthly PMI, a piggyback, lender-paid insurance, or a bigger down payment. Everything else follows from this choice.
2. Run the file through DU. The automated finding looks at credit, income, assets and ratios together. For most files it is the deciding opinion, not the 620 floor by itself.
3. Complete homeownership education if required. First-time buyers on the higher-leverage options usually need it. It must come from a provider independent of the lender, and a HUD-approved counseling agency counts. The lender keeps the completion certificate in the file.
4. Order the appraisal. For a purchase, LTV uses the lower of price or appraised value. That sets the denominator.
5. Recalculate the leverage. If the appraisal lands under the contract price, the loan can move back over 80% even though the contract implied 20% down. The loan amount, the down payment, or the price has to move. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
6. Document any required insurance. The lender must obtain and be able to produce evidence of the mortgage insurance, if the loan carries it.
What decides the outcome: the LTV after the appraisal, whether a lien sits on top of the first, credit and DTI as DU reads them, and whether the structure shows the insurance as a visible monthly line or buries it in the rate.
What Are the Routes to Skip PMI, and What Does Each One Cost?
Every route trades something. None is free. The table lays out the trade-offs.
| Route | How it works | What you give up |
|---|---|---|
| 20% down | First lien at 80% LTV or lower | Cash at closing |
| Piggyback | Second lien fills part of the gap | A second payment, extra closing steps |
| Lender-paid MI | Insurance cost built into the rate | Typically a permanently higher rate, hard to cancel |
| Accept PMI, then drop it | Monthly line that can end | Cost until cancellation |
The down route
Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
This is the clean one. The first lien sits at or below 80% of the lower of price or value, and no insurance applies. The catch is cash. Reaching 20% on the contract price is not enough if the appraisal comes in light, because the lower figure is what counts. Buyers who plan to land exactly on the line should keep a cushion in case the value falls short.
The piggyback route
A piggyback keeps the first lien at or below 80% LTV and covers part of the gap with a second lien. It lowers the cash needed at closing. It does not make the debt disappear. Per Fannie Mae’s subordinate financing rules, the lender must count every subordinate lien in CLTV and HCLTV, and the second lien must be recorded and clearly subordinate. Both payments go into your debt-to-income ratio. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Two details trip people up. The piggyback must be disclosed to the appraiser and the mortgage insurer. And if the seller provides the second financing at a price well below standard second-mortgage terms, Fannie Mae treats the difference as a sales concession. That lowers the value used in the ratios.
One more point. A CLTV above the usual ceiling applies only in a Community Seconds transaction, which is a specific assistance structure. A buyer stacking a second lien without that structure should not assume the combined ratio can run past the normal limits.
Lender-paid insurance
With LPMI, the insurance cost shows up in the interest rate instead of as a separate line. The monthly bill looks cleaner. The trade-off is that the cost does not fall away on its own schedule, and consumer-education sources generally say the usual exit is a refinance. Treat that as the general pattern, not a rule for every file, and ask the loan officer how a given structure handles it. “Lender-paid” does not mean free. The cost moved.
Accept PMI and plan the exit
This is a legitimate strategy, and for a first-time buyer with limited savings it is often the practical one. A 97% or 95% loan with borrower-paid PMI keeps cash in the buyer’s pocket. The insurance is a visible monthly line that can end. Published typical annual premiums run from 0.58% to 1.86% of the balance, a range that moves with credit and leverage and is not a quote.
How Does PMI Come Off?
Cancellation rights come from the Homeowners Protection Act. The CFPB’s explanation lays out the mechanics, and one misconception needs correcting first. PMI does not drop automatically at 80%. At 80% you have the right to ask.
1. Find the request date. It should be on the PMI disclosure form you receive with the mortgage.
2. Ask in writing. You can request cancellation once the balance reaches 80% of the home’s original value, including through extra principal payments.
3. Meet the conditions. The servicer must grant it if you have a good payment history and are current, have no junior liens such as a second mortgage, and can provide evidence, such as an appraisal, that the value has not fallen below the original value.
4. Wait for automatic termination if you do not ask. The servicer must terminate PMI on the date the balance is scheduled to reach 78% of the original value, as long as you are current.
5. Know the backstop. Final termination comes the month after the midpoint of the amortization schedule, which is year 15 on a 30-year loan.
Notice the original-value wording. The 78% date and the midpoint run on the original value and the original schedule, not on today’s market value. Appreciation can still help you, because a written request backed by an appraisal can get PMI off earlier, subject to the servicer’s rules.
The junior-lien condition matters for piggyback buyers. A second lien blocks a borrower-requested cancellation. That only comes into play if PMI exists. A piggyback built to keep the first lien at 80% LTV has no PMI to cancel. A buyer who takes PMI and later adds a home equity loan can run into the condition.
Where Does the General Rule Break?
The 80% line is clean on paper. These are the places files drift away from it.
A low appraisal. The lower of price or value drives purchase LTV. A buyer who budgeted exactly 20% can end up over the line.
Mixed first-time status. Fannie Mae’s test is no ownership interest in a residential property in the past three years. Freddie Mac’s definition is phrased differently. It requires buying the premises, occupying it as a primary residence, and no ownership interest in the prior three years. A timeshare does not count as ownership, and displaced homemakers and single parents can qualify. A co-borrower’s history can change which program fits.
Occupancy. The 97% options apply to one-unit principal residences. A second home, an investment property, or a larger multi-unit building sits at lower leverage, so the no-PMI math looks different. Occupancy decides the leverage.
Reduced coverage, not zero. HomeReady and Home Possible lower the required coverage on higher-leverage loans. They do not remove PMI. Fannie Mae also lets lenders choose less than standard coverage, but only with a pricing adjustment.
Loan size. A loan above the conforming limit is a jumbo loan and falls outside this agency framework. Jumbo has its own credit and leverage rules.
A past credit event. The agencies set waiting periods: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
How Should a First-Time Buyer Decide?
Match the route to the buyer. Here are four patterns, described without dollar figures.
The buyer with the cash for 20% down. Take the clean route and keep a cushion for a light appraisal. No insurance line, no second payment. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The buyer near 20% but short. A piggyback is the usual tool. It keeps the first lien at 80% and avoids PMI. Count both payments in the ratio, and expect a second set of closing steps.
The buyer with limited savings. Take 3% or 5% down with borrower-paid PMI. The line is visible, it can end, and cash stays available for reserves and repairs. For many buyers this beats draining savings to dodge the insurance. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The buyer comparing stay length. Someone staying a short time may prefer the structure with the lowest upfront cost. Someone staying many years should weigh the permanent cost of LPMI against a PMI line that ends. Ask the loan officer to show each structure side by side on the Loan Estimate.
What Should You Do Before You Apply?
A few preparation steps change the PMI outcome. Most of them take months, not days.
- Pull your credit and fix errors. Credit tier shapes both approval and the insurance cost.
- Pay down revolving balances. Lower DTI gives DU more room, and a second lien needs that room.
- Decide the structure before you shop. Know whether you are aiming at 80%, a piggyback, or low down with PMI.
- Set aside appraisal cushion. If the plan lands exactly on 80%, keep extra cash for a value shortfall.
- Line up education. If you need homeownership education, book a HUD-approved counseling agency or use a recognized online course early, because the certificate goes in the file.
- Document gifts and assets. Large deposits and gift funds need a paper trail.
Frequently Asked Questions
Do first-time buyers have to pay PMI on a conventional loan?
Only if the first lien is above 80% LTV. First-time status neither triggers nor exempts PMI. A buyer who borrows 80% or less of the lower of price or appraised value has no mortgage insurance on the first lien. A buyer at 97% or 95% leverage will carry it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Does PMI drop off automatically at 80%?
No. At 80% of the original value you can request cancellation in writing, and the servicer must grant it if you are current, have no junior liens, and can show the value has not fallen. Automatic termination comes at 78% of the original value, with a final backstop after the midpoint of the loan schedule.
Is a piggyback loan better than paying PMI?
It depends on the buyer. A piggyback avoids PMI by keeping the first lien at 80% LTV, but it adds a second loan that counts in CLTV and debt-to-income. PMI is a visible line that can end. The better choice depends on how much cash you have and how long you plan to stay.
What is the minimum down payment for a first-time buyer?
The wholesale conventional programs reach 97% LTV, which is 3% down, on a one-unit principal residence with a fixed rate when at least one borrower is a first-time buyer. Otherwise the standard primary-residence limit is 95% LTV, or 5% down. Both are subject to lender guidelines and full file review.
What happens if the appraisal comes in low?
Purchase LTV uses the lower of price or appraised value, so a low appraisal can push the loan back over 80%. That can bring PMI back or force a larger down payment. The price, the loan amount, or the cash brought in has to adjust.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B7-1-01
3. Fannie Mae – FAQs: 97% LTV Options
4. CFPB – When can I remove PMI
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Check If Your Conventional Loan PMI Uses Appraised Value · HomeReady vs Conventional Loan for a Couple With One First-Time Buyer · Conventional Loan Requirements for Removing PMI Early
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.