Do First-Time Buyers Have to Pay PMI on a Conventional Loan?

The Quick Read: It depends on your down payment, not on your first-time status. If you put down less than 20% on a conventional loan, you will almost always carry private mortgage insurance (PMI). Put down 20% or more and you generally won’t. Being a first-time buyer unlocks a lower down payment option, but it does not exempt you from the insurance.

What Is PMI, in Plain English?

PMI is insurance that protects the lender, not you. If you stop paying and the home sells for less than you owe, the insurer covers part of the lender’s loss. You still lose the home. PMI does nothing to shield you from foreclosure.

It is also not homeowner’s insurance. Homeowner’s insurance covers damage to the house. PMI covers the lender’s risk on a high-balance loan relative to the home’s value.

Lenders ask for it because a small down payment leaves little cushion. Conventional loans are the kind sold to Fannie Mae and Freddie Mac. Both agencies require mortgage insurance on a loan above 80% loan-to-value. Fannie Mae’s Selling Guide states it plainly: a conventional first mortgage with an LTV above 80% needs a primary mortgage insurance policy.

Loan-to-value (LTV) is your loan amount divided by the home’s value. On a purchase, the value used is the lower of the sales price or the appraised value. A 10% down payment means a 90% LTV. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

When Do First-Time Buyers Pay PMI and When Don’t They?

You pay PMI when your LTV is above 80%. You skip it at 80% or below. First-time status never enters that test. A repeat buyer with 5% down pays it too. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Here is how the common scenarios line up.

That last row catches people. If the appraisal comes in under the price, the lender uses the lower number. A planned 20% down payment can slip under 20% of the appraised value, and PMI appears. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

So What Does First-Time Status Actually Do?

It gives you access to the lowest down payment. Across the conventional programs we place files with through wholesale lenders, a one-unit principal residence with a fixed rate can go up to 97% LTV (3% down) when at least one borrower is a first-time buyer. Everyone else tops out at 95% LTV (5% down) on a standard purchase. Subject to lender guidelines and full file review.

“First-time buyer” has a specific meaning here. You have had no ownership interest in a residence in the previous three years. Someone who sold a home four years ago can still qualify. The label is about the last three years, not your whole life.

So the trade is simple. First-time status lets you buy with less cash down. Less cash down means a higher LTV. A higher LTV means mortgage insurance. You get access, and you pay for it through PMI.

This is the heart of what a conventional loan with low down payment looks like. It is a real option, and for many buyers it beats waiting years to save 20%. It simply comes with a monthly cost you should plan for. For a closer look at how a broker fits into that process, Lendmire’s piece Does a Wholesale Broker Help First-Time Buyers Get a Conventional Loan? covers it.

How Is the PMI Cost Set?

The cost depends on your credit score, your LTV, the loan term, and the insurer’s pricing. Better credit and a bigger down payment generally mean a lower premium. Published typical annual premiums run from 0.58% to 1.86% of the loan balance. That is a range, not a quote. Your own figure will show up on your Loan Estimate.

Two terms confuse people here, so keep them apart.

Coverage is the share of the loan the insurer would cover if you default. It is set by LTV band, with higher LTVs carrying higher required coverage.

Premium is what you pay. It is not the same as coverage. A higher coverage level does not tell you your payment on its own.

Some conventional loans let the lender choose lower minimum coverage. That is not free. Fannie Mae attaches a loan-level price adjustment, which is an extra pricing charge based on LTV and credit score. You trade a lower premium for pricing somewhere else.

How Do You Pay It?

Most borrowers pay PMI monthly. The premium is added to your mortgage payment. Because it is part of the housing payment, it counts when the lender checks whether you qualify.

Other structures exist. Some loans use a single premium paid at closing. Others split it: a smaller amount up front plus a monthly charge. The CFPB notes that the lender arranges the insurance through private insurers. You generally do not shop for your own insurer.

Fannie Mae also allows a borrower-paid single or split premium to be financed into the loan, within the loan limit. That option does not extend to two- to four-unit properties, investment property, or cash-out refinances. If you pay an up-front premium and then refinance or sell early, you may not get a refund.

On your paperwork, a monthly premium shows on page 1 of the Loan Estimate and Closing Disclosure under Projected Payments. An up-front premium appears on page 2, in section B. Look there first.

Does PMI Go Away?

Yes, on a standard borrower-paid conventional loan, PMI ends. It is not forever. Two dates matter.

You can ask to cancel at 80%. Once your balance is scheduled to fall to 80% of the home’s original value, you can request cancellation in writing. The servicer will look for a good payment history, no second liens, and proof the value has not dropped below the original value.

The servicer must end it at 78%. Under the Homeowners Protection Act, the servicer must automatically terminate PMI when the balance is scheduled to reach 78% of the original value. The CFPB explains both dates, and these protections cover single-family principal residences that closed on or after July 29, 1999.

Your PMI disclosure form lists your cancellation date. Find it at closing and put it on your calendar.

A few details that trip people up:

• Original value is the anchor. It generally means the lower of the sales price or the appraisal at purchase. The automatic dates run on that number, not on today’s market value.
• Appreciation does not trigger the automatic dates. If your home rose in value, you can ask the servicer about canceling on current value. That is a servicing option, not a legal right. It usually involves a new appraisal and waiting-period and payment-history conditions. Ask your servicer.
• Payment history matters. Fannie Mae’s consumer guidance says you may need to show no payment 30 or more days late in the past year, and none 60 or more days late in the past two years.
• Unearned premiums come back. Servicers must return unearned PMI premiums after cancellation or termination, and timing can vary by servicer and file.

Where PMI Doesn’t Follow the Usual Rules

Some structures behave differently. Know them before you sign.

Lender-paid mortgage insurance (LPMI). The lender pays the premium and builds the cost into your loan, which usually means a higher interest rate. The CFPB’s HPA examination manual notes that LPMI cannot be canceled by the borrower or automatically terminated. You may be stuck with it for the life of the loan unless you refinance.

High-risk loans. Cancellation and termination rights do not apply to loans the agencies or lenders define as high-risk.

Low-down-payment programs. HomeReady and Home Possible do not require you to be a first-time buyer. They carry an income limit of 80% of area median income. They reduce mortgage insurance coverage but do not remove it above 80% LTV. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Second homes. The legal cancellation rights are written for primary residences. Freddie Mac’s guidance counts second homes for cancellation purposes. If your situation is not a standard primary residence, ask your servicer which rules apply.

Refinances. PMI usually applies to a conventional refinance with less than 20% equity too. A limited cash-out (rate-and-term) refinance can go to 95% LTV on a one-unit principal residence, with mortgage insurance above 80%.

FHA and VA are different products. FHA loans carry their own mortgage insurance premium with different cancellation rules. VA loans have no monthly mortgage insurance. If you are active-duty or a veteran, Lendmire’s piece How Much a VA Loan Saves First-Time Active-Duty Buyers Over Conventional walks through that comparison. Don’t use “PMI” and “FHA insurance” interchangeably. They are not the same.

Can You Avoid PMI?

Yes, but each route has a cost. None of these is a free pass.

Our own experience with these files is that “no PMI” almost always means the cost moved somewhere else: a higher rate, a second payment, or a bigger check at the closing table. Compare the full picture, not just the PMI line.

Should You Pay PMI Now or Wait to Save 20%?

There is no universal answer. It is a genuine trade-off, and it comes down to what waiting costs you.

PMI is a monthly cost that ends when you reach the 80% and 78% marks. Waiting is a different cost. You keep paying rent, you stay exposed to price movement, and you may spend years reaching 20%. For many buyers with steady income and a plan to stay put, buying now with PMI and letting it cancel is reasonable. PMI can help you qualify for a loan you might not otherwise get.

Waiting makes more sense if your budget is already tight with PMI included, or if a higher credit score a few months out would meaningfully improve your insurance cost. A short wait to lift your score can pay off. A multi-year wait often costs more than it saves.

Run it this way. List what PMI adds each month to your housing payment on your Loan Estimate. Then ask how long until you reach 80% LTV. If that date is within a few years and the payment fits comfortably, PMI is a manageable stepping stone. If the payment strains the budget, the answer changes. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

What the Lender Looks For on a Low-Down-Payment File

Across the wholesale conventional programs we place files with, the automated underwriting finding governs most files. A few markers matter:

• Credit score. The wholesale conventional programs start at a 620 decision score (640 on an adjustable rate under manual underwriting).
• Debt ratio. The automated ceiling for total debt-to-income is 50%. Manually underwritten loans use 36% or 45%, depending on reserves and score factors.
• Education. For purchases above 95% LTV where every occupying borrower is a first-time buyer, homeownership education is required for at least one borrower. Fannie Mae’s HomeView course can satisfy it.
• Loan type. The 97% option requires a fixed-rate loan on a one-unit principal residence run through automated underwriting.
• Credit events. Agency waiting periods apply after a bankruptcy, foreclosure, or short sale. They are four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

All of this is subject to lender guidelines and full file review.

Key Terms Defined

PMI (private mortgage insurance): Insurance that protects the lender when you borrow with less than 20% down on a conventional loan. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

LTV (loan-to-value): Your loan amount divided by the home’s value, shown as a percentage.

Original value: Generally the lower of the sales price or the appraisal at purchase. Legal cancellation dates run off it.

Coverage: The share of the loan the insurer would cover. It is not your premium.

LPMI (lender-paid mortgage insurance): Insurance the lender pays by raising your rate. You cannot cancel it.

Loan-level price adjustment (LLPA): An extra pricing charge tied to LTV and credit score.

What To Do This Week

1. Decide your realistic down payment and convert it to an LTV.

2. Check your credit score and look for anything fixable.

3. Ask for a Loan Estimate and find the PMI line on page 1.

4. Ask whether the premium is monthly, up front, or split.

5. Find your cancellation date on the PMI disclosure form.

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. Call 828-256-2183 or request a quote at 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.

References

1. Fannie Mae Selling Guide B7-1-01

2. CFPB

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

4. Fannie Mae – What to Know About PMI