Is PMI on a Conventional Loan Based on Appraised Value?

The Quick Read: Not by itself. On a purchase, the lender uses the lower of your sales price or the appraised value to set your loan-to-value ratio (LTV, the loan balance divided by the home’s value). If the appraisal comes in above the price, the extra value does not help. If it comes in below, LTV goes up and PMI gets more likely. PMI is required above 80% LTV, and later, removal runs on a different value. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Most borrowers blur three separate questions into one. Which value decides whether you need PMI? Which value sets how much coverage the loan carries? And which value counts when you try to drop it? Each has its own answer. This article takes them in order.

Which Value Decides Whether You Need PMI at Purchase?

On a purchase, the lender takes the lower of the contract price and the appraised value. That figure is the denominator in your LTV. Fannie Mae’s Selling Guide requires mortgage insurance on a conventional first mortgage above 80% LTV, and says the value for a purchase-money loan is the lower of the two. Freddie Mac’s Guide defines value the same way. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Why the lower number? The lender is lending against what the home can be sold for, not what you agreed to pay. A price above appraised value means you are paying a premium the collateral does not back up. Underwriting ignores that premium.

Here is how it plays out on a home with a contract price of 100 units and a 5% down payment. These are modeled percentages, not market data. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

That last row is the painful one. At 95% leverage on a 100-unit price, a 95-unit appraisal pushes the loan well past what the standard purchase program allows. You would need to bring more cash, renegotiate the price, or walk. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Across the wholesale conventional programs we place files with, standard purchase leverage tops out at 95% on a principal residence. First-time buyers can reach 97% on a one-unit home with a fixed rate, meaning “first-time” is defined as no ownership interest in a residence in the previous three years. Both are subject to lender guidelines and full file review.

Does a High Appraisal Get You Out of PMI?

No. On a typical purchase, a high appraisal does not lower your LTV below what the price implies. The lower-of-two rule caps the benefit.

This is the misconception we hear most. Buyers assume a home that appraises well above the price counts as instant equity. It feels like equity. On paper, for PMI purposes, it is not.

There is one named exception worth a sentence. New York law bases mortgage insurance on “fair market value,” which the state regulator defines as appraised value. Fannie Mae’s Selling Guide describes this treatment for non-co-op New York property. Outside that case, the lower-of-two rule governs.

A second, narrower exception exists for affordable lending. Fannie Mae allows LTV to rest on appraised value alone for certain shared-equity transactions and Community Seconds with a subsidized sales price. It applies to principal residences only, and it is not a loophole for ordinary buyers.

Does the Appraisal Change What You Pay for PMI?

Indirectly. The appraisal does not set your premium. It changes your LTV, and LTV is one of the inputs that drives the cost.

Think of it as a chain. Value feeds LTV. LTV above 80% triggers mortgage insurance. The LTV band then sets the level of coverage the insurer must provide on the loan. Fannie Mae’s coverage grid steps up band by band as LTV climbs. That coverage is the insurer’s protection, not your premium. Your premium also depends on your credit profile, the loan type, and the lender’s pricing.

Published typical annual premiums run roughly 0.58% to 1.86% of the loan balance. That is a range, never a quote. Your actual cost depends on your file and is shown on your Loan Estimate.

So a low appraisal can hurt you three ways:

• It can push you from under 80% LTV to over it, which adds PMI.
• It can move you into a higher coverage band.
• It can force more cash down or a lower price. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

A high appraisal does none of the reverse.

Seller Credits and Financed Insurance Can Move LTV Too

Seller concessions above the agency limits are deducted from the price before LTV is calculated. If that pushes LTV up, coverage is set on the recalculated figure. Fannie Mae’s interested-party contribution rules spell this out.

Financing the mortgage insurance premium into the loan works similarly. The loan amount plus the financed premium is divided by the lower of price or appraisal. Same denominator, slightly bigger numerator.

If you are negotiating credits, ask your loan officer how they interact with LTV before you sign.

Which Value Counts When PMI Comes Off?

Removal runs on original value, not your home’s market value today. Under the Homeowners Protection Act (HPA), original value is the lesser of the contract price or the appraised value when the loan closed. For a refinance, it is the appraised value the lender relied on.

Here is the timeline, as the CFPB describes it:

• At 80% of original value, you can ask the servicer to cancel.
• At 78% of original value, the servicer must terminate it automatically.
• Your request needs to be in writing, with a good payment history, a certification that you have no subordinate liens, and evidence the value has not fallen below original value.

Fannie Mae’s homeowner page confirms the same 80% and 78% marks, tied to your original amortization schedule. Keep your PMI disclosure form and that schedule. They tell you your dates.

Notice what is missing: the market. If your neighborhood booms, the HPA does not care. Those dates run on original value and the scheduled balance.

One more catch. It does not reach lender-paid mortgage insurance, and servicers apply their own rules to other cases. FHA mortgage insurance and VA loans follow different rules and are outside this article.

Can a New Appraisal Get PMI Removed Early?

Sometimes. This is the appraisal route, and it is investor and servicer policy, not a statutory right. If your home has risen in value, you can ask the servicer to cancel based on current value.

Fannie Mae’s Servicing Guide says the servicer must verify the current value. If a broker price opinion (BPO, a value estimate by a real estate professional) or an appraisal comes in below original value, the request is denied. The exception is if you pay the balance down enough to meet the LTV criterion.

Fannie Mae’s Lender Letter LL-2018-03 loosened the process. It allows verbal or written requests and lets servicers verify value with a BPO or Fannie Mae’s Automated Property Service. It also raised the threshold for terminations based on documented improvements to 80%.

The thresholds generally tighten the earlier you ask. A lower LTV is typically required in the first several years of ownership, and a slightly higher one later. Documented substantial improvements can open an earlier request. Exact figures vary by investor and servicer, so call yours before paying for anything.

Fannie Mae and Freddie Mac set their own criteria, and the HPA does not address current-value cancellation at all. Two-to-four-unit and investment properties generally face stricter thresholds. Your servicer’s rules govern.

One Loan, Two Cancellation Routes

Picture a buyer who put 5% down on a home where price and appraisal matched. Original value equals the price. Under the original-value route, the buyer waits for the scheduled balance to reach 80% of that figure, then asks. At 78%, it ends automatically. Nothing about the market matters. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Now suppose the neighborhood rises. The same buyer could request removal on current value instead. That needs seasoning, a good payment record, and a BPO or appraisal showing the LTV meets the investor’s threshold. If the value verification comes back short of original value, the request is denied.

The practical choice comes down to cost versus savings. If your original-value date is a few months away, an appraisal fee may not pay back. If your home has gained a lot and the date is years off, it often does.

Refinancing Versus Appraisal-Based Cancellation

A refinance can drop PMI, but it is not guaranteed to. The new loan needs its own appraisal, and that appraisal resets original value. If the home has appreciated enough that the new loan sits at or below 80% LTV, mortgage insurance is not required. You also take on new closing costs and a new loan term. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

The short version: compare the cost of a refinance against the cost of a valuation request. Cancellation is usually cheaper when you qualify for it.

What if the Appraisal Comes In Low?

You have options, and none of them is automatic. A low appraisal means the lender uses the lower value, so LTV rises.

• Renegotiate the price. Many sellers drop toward the appraised value, especially if a second appraisal would likely say the same.
• Bring more cash. Closing the gap with a larger down payment can bring LTV back inside the program.
• Challenge the appraisal. If the appraiser missed comparable sales or details, you can ask the lender for a reconsideration of value with supporting evidence.
• Walk away. Your contract may have an appraisal contingency. Know what yours says.

Leverage depends on occupancy and unit count. Principal residences with two to four units reach 95%, second homes reach 90%, and investment property is capped lower. Those caps apply whatever the appraisal says, subject to lender guidelines.

Key Terms Defined

• Loan-to-value (LTV): The loan balance divided by the home’s value. A $0 equity buyer sits at 100%.
• Original value: The lesser of the contract price or appraised value when the loan closed. For a refinance, the appraised value the lender relied on.
• Current value: What the home is worth today, as verified by an appraisal or BPO.
• Broker price opinion (BPO): A value estimate from a real estate professional, cheaper than a full appraisal.
• Loan-level price adjustment (LLPA): A pricing add-on tied to risk factors, such as choosing less than standard insurer coverage.

What to Do Next

Before you write an offer, work out your LTV against the price and against a lower appraisal. Know your cushion. If you want a second view on the numbers, Lendmire’s article How Much Waiting to Avoid PMI Costs on a Move-Up Conventional Loan lays out the tradeoff.

If you are buying a home and want to see whether Lendmire’s conventional loan programs fit your file, Lendmire can help you compare the options and what each one asks of the file. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

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

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B7-1-01: Provision of Mortgage Insurance

2. Freddie Mac’s Guide

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

4. Fannie Mae Selling Guide B3-4.1-02: Interested Party Contributions

5. CFPB, Ask CFPB: removing PMI

6. Fannie Mae Your Home, PMI

7. Fannie Mae Servicing Guide B-8.1-04: Termination of Conventional Mortgage Insurance

8. Fannie Mae Lender Letter LL-2018-03