CalculatorWhat Is PMI in Real Estate?
TL;DR— Quick Summary
- PMI protects the lender — not the borrower — on conventional loans under 20% down
- PMI typically costs 0.5% to 1.5% of the loan amount per year
- On a $350,000 loan, monthly PMI ranges from about $146 to $438
- PMI cancels at 80% LTV by request or 78% LTV automatically under federal law
- FHA uses MIP, VA uses a funding fee, and USDA uses a guarantee fee instead of PMI
What Is PMI in Real Estate?
Quick answer: PMI (private mortgage insurance) is an insurance policy that protects your lender — not you — if you stop making payments on a conventional mortgage. It is required when you put less than 20% down. PMI typically costs 0.5% to 1.5% of your loan amount per year, paid monthly as part of your mortgage payment.
PMI makes it possible to buy a home with as little as 3% to 5% down on a conventional loan. The tradeoff is an extra monthly cost until you build enough equity to cancel it.
How PMI Works
When you put less than 20% down on a conventional loan, the lender faces more risk. If you default and the home sells for less than the loan balance, the lender loses money.
PMI covers part of that risk. You pay the premium — usually monthly — but the lender is the beneficiary. If you default, the insurance company pays the lender a claim.
When PMI is required:
- Conventional loans (not FHA, VA, or USDA)
- Down payment less than 20%
- Most single-family primary residences and second homes
When PMI is not required:
- 20% or more down on a conventional loan
- VA loans (funding fee instead)
- USDA loans (guarantee fee instead)
- FHA loans (MIP instead — different rules)
Your servicer arranges PMI through a private mortgage insurance company such as MGIC, Radian, or Essent.
How Much Does PMI Cost?
PMI rates depend on your credit score, down payment, loan amount, and loan type. The typical annual range is 0.5% to 1.5% of the loan amount.
$250,000 loan examples
| Annual PMI rate | Yearly cost | Monthly cost |
|---|---|---|
| 0.5% | $1,250 | $104 |
| 1.0% | $2,500 | $208 |
| 1.5% | $3,750 | $313 |
$350,000 loan examples
| Annual PMI rate | Yearly cost | Monthly cost |
|---|---|---|
| 0.5% | $1,750 | $146 |
| 1.0% | $3,500 | $292 |
| 1.5% | $5,250 | $438 |
Higher credit scores get lower PMI rates. A borrower with a 760 credit score might pay 0.5%, while a 620 score could pay 1.2% or more on the same loan.
PMI is calculated on the original loan amount in most cases and does not automatically drop as you pay down principal — you must reach 80% LTV to cancel it. See how to cancel PMI for the full process.
Borrowers with 740+ credit scores and 15% down often land near 0.5% PMI. Scores below 680 with 5% down can push rates toward 1.3% to 1.5% on the same loan size.
What Does PMI Cover?
PMI protects the lender only. It does not:
- Pay your mortgage if you lose your job
- Cover home repairs or damage
- Replace homeowners insurance
- Protect your down payment
If you default, PMI pays the lender a percentage of the loss after foreclosure. You still lose the home and any equity you built.
Homeowners insurance protects you and the lender against property damage. PMI protects the lender against your failure to pay the loan. These are separate policies with separate costs.
PMI vs MIP vs Guarantee Fee
Government-backed loans use different insurance structures than conventional PMI:
| Loan type | Insurance name | Upfront cost | Annual/monthly cost | Can it be removed? |
|---|---|---|---|---|
| Conventional | PMI | None (usually) | 0.5%–1.5%/year | Yes — at 80% LTV request, 78% automatic |
| FHA | MIP | 1.75% upfront | 0.55%/year (most loans) | Rarely — life of loan if less than 10% down |
| VA | Funding fee | 1.25%–3.3% (varies) | $0 monthly | N/A — one-time fee |
| USDA | Guarantee fee | 1% upfront | 0.35%/year | Stays for life of loan |
Dollar comparison on a $300,000 loan:
- Conventional PMI at 0.8%: $2,400/year ($200/month)
- FHA MIP at 0.55% + 1.75% upfront: $1,650/year ($138/month) + $5,250 upfront
- VA funding fee at 2.15% (first use, 0% down): $6,450 one-time, $0/month
- USDA guarantee fee: $3,000 upfront + $875/year ($73/month)
See Do VA and USDA Loans Have PMI? for a full government loan comparison.
When Does PMI Go Away?
Under the Homeowners Protection Act (HPA):
- You can request cancellation at 80% LTV of your home's original value
- Automatic termination at 78% LTV if your loan is current
- Final termination at the loan midpoint if PMI was not cancelled earlier
On a $300,000 home with 10% down and a 7% rate, regular payments alone reach 80% LTV in about 8.4 years.
You can also cancel sooner if your home value rises and your servicer accepts a current appraisal showing 80% LTV or less.
FHA MIP follows different rules — often lasting the life of the loan. See how to avoid PMI if you are still shopping for a loan.
Frequently Asked Questions
What is PMI in real estate?
PMI is insurance that protects your lender on conventional loans with less than 20% down. You pay the premium monthly until you reach enough equity to cancel it.
Who does PMI protect?
PMI protects the lender, not the borrower. If you default, the insurer pays the lender — not you.
How much is PMI per month?
On a $300,000 loan, PMI typically runs $125 to $375/month depending on your rate (0.5% to 1.5% annually) and credit score.
Is PMI required?
PMI is required on conventional loans with less than 20% down. VA and USDA loans do not use PMI. FHA uses MIP instead.
Does PMI go away?
Yes — on conventional loans, PMI cancels at 80% LTV (your request) or 78% LTV (automatic). See how to cancel PMI.
Ready to compare mortgage options? Get a free quote through LendingTree to see rates with and without PMI.
About the author
CalculatorBasics Financial Team researches mortgage, lending, and calculator strategy topics with a focus on practical decisions and transparent assumptions.