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Private mortgage insurance: A PMI primer

Depending on your down payment, private mortgage insurance (PMI) may be required. We walk you through PMI basics.

Private mortgage insurance, known as PMI, is generally required if your down payment is less than 20% of the cost of the home. We offer insight into what PMI is, how to budget for it when purchasing a home, insurance changes to remember, how to avoid PMI and what you can do to stop paying PMI.

What to know about private mortgage insurance

What is PMI?

Lenders consider you to carry more risk if you make a down payment of less than 20% of your home’s cost. For borrowers with relatively little equity in their home, lenders require private mortgage insurance, or PMI, to protect them if you fail to make payments on your loan. If you can’t afford a 20% down payment, you’re not alone:

From 2017 to 2019:1

  • 18.7% of conventional mortgages required PMI
  • Loans with PMI averaged $236,100
  • The average value of a home that required a PMI loan was $280,260

How much does PMI cost?

If your down payment will be less than 20%, PMI premium payments will likely be part of your monthly loan payment amounts for a while. The amount you’ll pay depends on the size of your loan, the amount of your down payment and your credit score.

  • Annual premium range for PMI as of September 2020: 0.58% to 1.86%2
  • Example: $235,000 loan — 0.75% premium = $1,762.50 per year or an extra $146.88 per month

Getting rid of PMI

Once the principal outstanding on your loan reaches 80% of your home’s value, you can request that your bank cancel PMI under these conditions:

  • You request cancellation in writing
  • You have made your payments on time and the loan is current
  • You haven’t used the home to secure additional loans, like a second mortgage

Automatic cancellation

If you are current on your payments, your lender may automatically cancel your PMI when the remaining loan principal reaches 78% of your home’s original value.3

For more information on lending and more, visit

112/4/2019, Urban Institute. “Mortgage Insurance Data at a Glance.
2September 2020, Urban Institute. “Housing Finance at a Glance.
32017, Consumer Financial Protection Bureau, “When can I remove private mortgage insurance (PMI) from my loan?

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Neither State Farm nor its agents provide tax or legal advice.


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