You should pay PMI upfront if: You have the extra savings to cover the premium cost. If you have the cash to cover your down payment, closing costs and the extra premium expense, you'll end up with a lower monthly payment. Your closing costs are being paid by the seller.
Single-premium PMI
Depending on the terms of the loan, you can either pay this in full at closing or roll the amount into the loan for a higher balance. If you pay it upfront, you'll get the benefit of lower monthly mortgage payments.
If you can easily afford it, you should probably put 20% down on a house. You'll avoid paying for private mortgage insurance, and you'll have a lower loan amount and smaller monthly payments to worry about. You could save a lot of money in the long run.
As of 2021, the upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount. 1 You can pay this amount at closing or finance it as part of your mortgage. The UFMIP will cost you $1,750 for every $100,000 you borrow. If you finance it, you'll pay interest on it, too, making it more expensive over time.
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
The loan has not been more than 60+ days past due in mortgage payments within the last two years or 30+ days past due within the last year. There has not been a property value decline based on the actual sales price or original appraised value.
If you buy a $300,000 home, you could be paying somewhere between $600 – $6,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable. In this example, you're likely looking at paying $50 – $500 per month.
A refund of an upfront mortgage insurance premium (MIP) payment can be requested through HUD's Single Family Insurance Operations Division (SFIOD). On the FHA Connection, go to the Upfront Premium Collection menu and select Request a Refund in the Pay Upfront Premium section.
Getting rid of PMI is pretty simple. All a borrower has to do is pay down the loan's principal balance to 80% or lower of the home's original appraised value, or to 80% of the home's current market value. All this means is that a borrower must show they have at least 20% equity in the property.
If you want to get the PMI off of your loan sooner you'll have to pay down what you owe faster. Consider sending one-time lump sums to your mortgage, such as a bonus at work or your tax returns. Note, that making small additional monthly payments won't make much difference to getting rid of PMI.
If you take out a conventional mortgage and you can pay 20% or more on the down payment, you can effectively avoid being required to take out PMI along with your mortgage.
Put 10% Down with No PMI by Using a Piggyback Loan
A piggyback loan, or a 80/10/10 mortgage, allows you to finance 80% of a home through a mortgage. Then, you put down 10% in cash. The other 10% required to make up a 20% down payment comes from a second loan, worth 10% of the home's value.
For a little more than a decade, PMI was tax deductible for homeowners who met eligibility requirements and itemized their deductions. Since the 2022 tax year, it's no longer possible to take deductions on new mortgage insurance payments, as the PMI deduction has expired.
Get an Appraisal
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
You can remove PMI from your monthly payment after your home reaches 20% in equity, either by requesting its cancellation or refinancing the loan.
A borrower can request PMI be canceled when they've amassed 20 percent equity in the home and lived in it for several years. There are other ways to get rid of PMI ahead of schedule: refinancing, getting the home re-appraised (to see if it's increased in value), and paying down your principal faster.
Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI. For more information about canceling your PMI, contact your mortgage servicer.
PMI can be removed early when you reach an LTV of 80%, which can happens when: You make extra payments: If you've made extra payments or overpaid in certain months, you might not have to wait for automatic PMI cancellation.
What Does a High PMI Reading Indicate? The Purchasing Managers' Index reading can range between 0 and 100. If the index reading is higher than 50, then it indicates an economic expansion. This means that the closer the reading is to 100, the higher the degree of positive economic growth.
Is PMI based on credit score? Yes, your credit score affects how much private mortgage insurance will cost. A borrower with a higher credit score would likely pay a lower monthly premium for PMI than someone who has a lower credit score, even with the same down payment and mortgage amount.
“In order to get your private mortgage insurance removed, you may need to be on the loan for a minimum of 12 months,” shares Helali. “After you've been on the loan for one year, the lender should automatically dissolve the PMI when you have 22% equity in the home.”
The Bottom Line. PMI is expensive. Unless you think you can get 20% equity in the home within a couple of years, it probably makes sense to wait until you can make a larger down payment or consider a less expensive home, which will make a 20% down payment more affordable.
Can I remove PMI before 1 year? You can typically request PMI be removed once you've reached 20% equity in your home in many cases as long as the value is verified. You will also need to be current on your payments.