About PMI
Lenders typically require borrowers to have at least a 20% equity position1 on conventional loans. Private mortgage insurance (PMI) allows borrowers to have a reduced down payment or lower equity in the property being financed. If you do not have 20% in equity or down payment, the lender will require private mortgage insurance (PMI).

PMI insurance is paid by the borrower. The payment is included in the regular house payment.

The advantage to PMI is that it allows you to make a down payment of less than 20%. As a form of financial leveraging PMI may be a good investment vehicle. In other words, you may get a better rate of return on investments made with the money you could have used for a down payment.

A second advantage is that you may purchase a larger home with a lower down payment. You can purchase a home with as little as 5% down using PMI. With $10,000 you could make a 5% down payment on a $200,000 home or put 20% down on a $50,000 home2.

Additionally, you may be able to purchase a home sooner. If you are finding it difficult to save for a down payment faster than the increase in housing prices, PMI will enable you to stretch the money you have saved by allowing a smaller down payment.

The disadvantage of PMI is the cost. You are required to have PMI included in your monthly payment. The payment amount for PMI is calculated using a variety of factors: loan amount, loan type and percentage of down payment (loan-to-value, LTV). Traditional monthly PMI on a $100,000 thirty-year fixed rate loan with a 10% down payment (sales price of $111,111) will run about $43.33 per month.

There are several alternatives to PMI if you are making a down payment of less than 20%. Two of these alternatives are ‘piggyback loans’ and lender insured loans. check out PMI Alternatives.


1. value is determined using the lesser of the purchase price or appraised value

2. downpayment is exclusive of closing costs, prepaid items, and required reserves, if any


Home Mortgage home page

Calculate PMI payments

PMI alternatives

How to eliminate PMI