How Much PMI Adds on a Conventional Loan for a Buyer Weighing FHA

The Quick Read: PMI adds an annual cost, spread across your monthly payments, that depends mostly on your credit score and your down payment. Nobody can name one number for every buyer, because private insurers price each file individually. A strong-credit buyer with a larger down payment can pay far less than a buyer near the bottom of the credit range. FHA works the other way: its insurance schedule barely reacts to your score. That difference is why this choice flips from one buyer to the next.

What Does PMI Actually Add to Your Payment?

PMI is a monthly line item added to your principal, interest, taxes and homeowners insurance. It is an annual percentage of your loan, divided into twelve payments. The percentage is set by the insurer, not by the lender and not by a government schedule.

Three things move it the most:

• Credit score. Higher scores earn cheaper PMI. Lower scores can raise it sharply.
• Down payment. A smaller down payment means a higher loan-to-value ratio, and that raises the price.
• Loan structure. Term, fixed versus adjustable, and who pays (you or the lender) all change the result.

Here is the honest part. No federal source publishes a single “PMI costs X” figure, and any article that does is averaging over very different borrowers. What you can know is the direction. Better credit and more down push the cost down. Thinner credit and less down push it up, and the spread between those two ends is wide.

You also do not choose the insurer’s price. Your lender orders the policy, and the quote lands on your Loan Estimate.

Why Does Conventional Financing Require PMI at All?

Conventional loans usually carry mortgage insurance when you put less than 20% down. The Consumer Financial Protection Bureau describes mortgage insurance as protection that lowers the lender’s risk and raises your cost. It protects the lender, not you.

Loan-to-value (LTV) is your loan amount divided by the lesser of the price or the appraised value. Mortgage insurance typically enters a conventional file when LTV rises above 80%, so it shapes nearly every low-down-payment conventional file.

One wrinkle: the appraisal can move you across the line in either direction. If the home appraises below the price, your LTV rises, and PMI can enter a deal you thought was clean.

How Is PMI Priced, Step by Step?

PMI pricing follows a short chain. Each step changes the final number.

1. Your LTV is set. The price, the appraisal and your down payment fix it.

2. Required coverage follows. Higher LTV bands require the insurer to cover a bigger slice of the loan. That is why 5% down costs more than 15% down.

3. The insurer prices the policy. Insurers cross your credit score with your LTV and adjust for term, occupancy and loan type. This is the step that makes PMI a risk-priced product.

4. You pick how it is paid. More on that next. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Mortgage insurance coverage requirements are published by the agencies as tables organized by LTV band. Those tables have been revised over time, so this article describes the pattern instead of quoting percentages: more LTV, more required coverage.

Four Ways to Pay for PMI

The payment structure changes your monthly number and your cash at closing. Across the wholesale programs Lendmire works with, buyers typically see these options:

Monthly is the standard. Single and split premiums trade cash now for a lower payment later. Lender-paid mortgage insurance has no separate PMI line, but the cost does not vanish. It typically appears as a higher cost built into the loan itself, and you generally cannot cancel it the way you can cancel borrower-paid PMI. Treat it as a trade that suits a buyer who expects to refinance or sell soon.

Some conventional programs for lower-income buyers also reduce the coverage requirement. Fannie Mae’s HomeReady and HFA Preferred are examples. If you qualify, the PMI cost can fall enough to put conventional on even footing with FHA, so ask your loan officer whether you are eligible.

What Does FHA Charge Instead?

FHA does not charge PMI. It charges mortgage insurance premium, or MIP, paid into a federal program. FHA insurance applies to every FHA loan and, apart from a slight increase in some cases, does not move with your credit score the way PMI does.

The mechanics, from what Lendmire arranges through its FHA loan programs:

• Upfront premium: 1.75% of the base loan, which can be financed into the loan. HUD Mortgagee Letter 2023-05 sets that figure.
• Annual premium: between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
• Duration: on a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV it ends after eleven years.

The structure of FHA is its main feature. You get a maximum 96.5% financing with a 3.5% minimum investment at a decision score of 580 or higher, and the insurance cost is far less sensitive to your score. In exchange, you pay that upfront premium, and the annual charge can stay for the life of the loan.

Side by Side: Conventional PMI vs. FHA Insurance

The upfront premium matters more than it looks. Because you usually finance it, your starting loan balance is higher than the price minus your down payment. You then pay interest on that premium for as long as you keep the loan. PMI has no matching feature.

Where Does the Math Cross Over?

Think of three buyers, each putting down a small percentage on the same home. No dollar figures here, just direction.

A buyer with a high score and a bigger down payment. PMI is priced at the cheap end of the insurer’s card, and it falls away once equity builds. Conventional usually wins, and the gap tends to widen over time.

A buyer with a middling score and a minimal down payment. This one is a genuine toss-up. PMI at this tier can approach or pass FHA’s monthly insurance, but FHA adds the upfront premium. Run both loan estimates side by side, because the answer can land on either side.

A buyer near the bottom of the credit range. FHA often wins, because its insurance schedule does not punish the score the way PMI does. FHA’s flexibility is also part of why its premium exists, as the CFPB’s FHA overview explains: the program insures lenders against losses on loans made under more flexible standards.

Your holding period tilts the verdict. Plan to stay five years or less, and the option with lower upfront and early cost tends to win. Plan to keep the loan a decade or more, and the option you can remove tends to win. Honestly, buyers often skip that question and just compare month-one payments. That is the weakest way to choose.

How Does PMI Go Away?

PMI is temporary under federal law, and this is its biggest edge over FHA with a higher starting LTV. The CFPB explains the removal rules in three stages:

• You request cancellation in writing once your balance reaches 80% of the original value. You must be current on payments, and the servicer may ask for proof that value has not dropped and that you have no second liens.
• Automatic termination happens when your balance is scheduled to reach 78% of the original value, if you are current.
• Final termination comes the month after the midpoint of the loan term, which is year 15 on a 30-year loan.

Two points trip people up. First, the automatic rules use the original value and the original payment schedule, so appreciation alone does not trigger them. Second, the CFPB’s examination procedures say automatic termination has no value-decline test, while borrower-requested cancellation does. If your home has appreciated and you want PMI gone early, expect to ask your servicer, and expect to pay for a new appraisal.

FHA works differently. Equity growth does not cancel it. Duration is locked in at origination by your original LTV, as described above. To stop paying a lifelong FHA premium, you typically refinance into a conventional loan. A refinance has its own costs and depends on your credit and your home’s value at that point. It is an exit, not a guarantee.

Where the General Rule Breaks

Several edge cases change the picture:

• Lender-paid insurance. The cancellation rights above cover borrower-paid PMI. With lender-paid coverage, the cost sits in the loan terms, and getting rid of it generally means refinancing.
• High-risk loans. The law lets lenders define a category of “high-risk” loans with different cancellation treatment, and your disclosure must say whether yours is one.
• Financed PMI. Fannie Mae allows some borrowers to finance a single-premium policy on certain purchase loans of a one-unit principal residence. Coverage is set on the LTV without the financed premium.
• Older FHA loans. FHA loans with case numbers before June 3, 2013, follow older cancellation rules. Anything newer follows the LTV-based schedule above, per HUD Mortgagee Letter 2025-06.
• FHA Streamline. The Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but it requires a net tangible benefit, and the premium continues. It is not an escape from FHA insurance.

If the property is a second home or a rental instead of your primary residence, occupancy changes the leverage and the insurance treatment. FHA is for owner-occupied principal residences only.

How to Lower or Avoid PMI

You have several levers, each with a cost:

1. Put more down. Reaching 80% LTV removes the requirement. Even moving to a lower LTV band can reduce the price.

2. Raise your credit score before applying. Because PMI is risk-priced, a score improvement can move you to a cheaper tier.

3. Ask about lender-paid options and read what they cost in the loan terms.

4. Ask about reduced-coverage programs if your income qualifies.

5. Compare a piggyback structure, where a second loan fills the gap. Lendmire’s piece Piggyback Second vs. PMI for a Strong-Credit Buyer Weighing FHA covers that tradeoff. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Questions to Ask Your Loan Officer

Get both loans quoted for the same home, then compare on the Loan Estimate:

• What is the monthly PMI, and which credit tier and LTV band produced it?
• What coverage structure is quoted: monthly, single, split or lender-paid?
• On the FHA option, what is the financed upfront premium, and what is the starting balance after it?
• When would each insurance charge end, based on my numbers?
• What would it take, and cost, to refinance out of FHA later?
• Do seller or interested-party contributions change the picture? On FHA they can reach 6% of the price.

Key Terms Defined

PMI (private mortgage insurance). Insurance on a conventional loan, priced by private insurers, that protects the lender when your down payment is under 20%.

MIP (mortgage insurance premium). FHA’s version of mortgage insurance, set by a federal program schedule and paid by the borrower.

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

Original value. For PMI removal, generally the lower of the purchase price or the appraised value when you bought.

Lender-paid mortgage insurance. A structure where the lender covers the premium and recovers the cost through the loan terms instead of a separate payment.

Next Step

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Reach the team at 828-256-2183.

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.

References

1. CFPB – What is mortgage insurance and how does it work?

2. HUD Mortgagee Letter 2023-05

3. CFPB’s FHA overview

4. CFPB – When can I remove PMI from my loan?

5. HUD Mortgagee Letter 2025-06