How to Avoid PMI When Buying a Home

1. Make a 20% Down Payment

Conventional mortgage lenders typically charge PMI if you put down less than 20% of the home's purchase price upfront. If you can manage to make a down payment of 20% or more, though, you can avoid PMI and keep your monthly payments lower.

This may require delaying your home purchase until you can save more money. If this is the case, consider home prices when deciding how to proceed. If home prices rise in your area, the 20% mark would rise, too, requiring an even larger amount of savings.

Learn more: Should You Put Down 20% on a Home? Consider the Pros and Cons

2. Pay a Higher Interest Rate

Some lenders may allow you to make a down payment of less than 20% and not charge you PMI—or they pay for PMI themselves. The catch is that you will usually pay a higher interest rate, which will stay with you for the life of the loan. (PMI, however, can be canceled once your loan balance falls below 80% of your home's value.)

If a lender offers you this option, do the math to be sure the higher interest rate won't cost you more than PMI would in the long run. You can use an online mortgage calculator to determine how much interest you'd pay on your loan amount at different rates.

Mortgage calculator

3. Get a VA or USDA Loan

PMI is only required on conventional loans. And while Federal Housing Administration (FHA) loans require a different type of mortgage insurance, if you can qualify for a mortgage backed by the U.S. Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA), you can avoid it altogether.

These loans aren't available to just anyone, though. To get a VA loan, you'll need to be a qualifying military service member, veteran or family member of one; for a USDA loan, you must fall under certain income thresholds and buy property in an eligible rural or suburban area.

Learn more: What Type of Mortgage Loan Is Best?

4. Get an 80-10-10 Loan

If you have enough money saved for a 10% down payment, using an 80-10-10 loan—also called a piggyback loan—can help you avoid PMI.

With these loans, you use two mortgages to buy your house: One covers 80% of the home's price and a second one covers an additional 10%. You then make a 10% down payment to account for the rest. This allows you to meet that 20% mark required by your main mortgage lender, therefore avoiding PMI requirements.

You will usually need a good credit score to qualify for a piggyback loan, and you may pay a higher interest rate on the second loan. The rate may also be variable, meaning it can change over time.

Learn more: Are Piggyback Loans a Good Idea?

5. Improve Your Credit Score

A good credit score can't help you avoid PMI altogether, but if you can't make a 20% down payment, it could help you qualify for lower PMI rates and save you money in the long run.

Example: On a $300,000 house with a 10% down payment and a credit score of under 639, a 2023 report from the Urban Institute shows you'd pay about $2,043 per month, including PMI. If your credit score were 780 or higher, though, it would drop to $1,809, saving you over $200 per month.

6. Buy a Lower-Priced Home

Finally, adjusting the price range on your home search—or looking for an older property or one in need of some updates—can also help. If you buy a lower-priced property, the amount you will need to save for a down payment shrinks.

Example: With a $400,000 home, you'd need an $80,000 down payment to avoid PMI. If you bought a $300,000 home, though, it would take just a $60,000 down payment.

Learn more: How Much House Can I Afford?

How to Remove PMI

If you cannot avoid PMI when taking out your loan, there's good news: PMI can be removed as you get further into your loan. The basic rule is that your loan balance must be 80% or less than your home's value (meaning you have 20% equity), but there are several ways you might be able to achieve this.

To remove PMI from your mortgage loan, you can:

• Request cancellation when you reach 20% equity. As you pay down your mortgage, you will reduce your loan balance and increase how much home equity you have in your home. Once you reach the 20% mark—and your loan balance is 80% or less of your home's value—you can contact your lender and request that it cancel your PMI policy.
• Await automatic cancellation. Legally, your lender must cancel your PMI once you've reached 22% equity in your home or you're halfway through paying off your loan (so 15 years into a 30-year loan term, for example).
• Pay extra toward your mortgage. Making extra mortgage payments can help you reach 20% equity faster. You may do this by adding extra to your monthly payments, putting windfalls toward your loan balance or taking a biweekly approach to your mortgage.
• Refinance your mortgage loan. If you've reached 20% equity, refinancing your loan can help you get rid of PMI.
• Get a new appraisal. If you think your home has improved in value, you can get a new appraisal for proof. If its value has indeed increased, your equity stake likely has, too, and you could be at the 20% mark needed to cancel your PMI. You can also complete home improvement projects to add value to your home and increase your equity.

Learn more: How to Get Rid of Private Mortgage Insurance (PMI)

You Have Options When Buying a House

If avoiding PMI costs is one of your goals as a homebuyer, there are many ways to go about it. You can opt for a VA or USDA loan, delay your home purchase, buy a lower-priced property, pay a higher interest rate or consider an 80-10-10 loan.

When you're looking to buy a home, your credit is important to getting approved and the interest rate you qualify for. Check and monitor your FICO^® Score^Θ with Experian. If it's not where you'd like it to be, use some strategies to improve your credit score before applying.