What is Private Mortgage Insurance (PMI) and How Does it Affect You

What Is PMI?

Buying a home is exciting, but sometimes the details—like private mortgage insurance (PMI)—can feel confusing. Let’s break it down.

What Is PMI?

Private mortgage insurance (PMI) is a policy your lender may require if your down payment is less than 20% of the home’s purchase price. PMI protects the lender, not you, in case you can’t make your mortgage payments.

PMI usually costs between 0.5% and 1.5% of your loan amount each year. Most often, this cost is added to your monthly mortgage payment until you build at least 20% equity in your home.

Why Do Lenders Require It?

It all comes down to risk. When you put less money down, lenders see a higher chance of loss if the loan goes unpaid. PMI is their way of reducing that risk.

The good news: PMI allows many buyers—especially first-time buyers—to purchase a home without needing a full 20% down. Some loan programs let you buy with as little as 3% down, though PMI will be included.

Do You Have to Pay PMI Forever?

No! PMI isn’t permanent. Once you reach 20% equity in your home, you can typically request to have it removed. At 22% equity, lenders are required to cancel it automatically if your payments are current.

U1 tip: Making a few extra payments toward your mortgage can help you reach that equity milestone faster and say goodbye to PMI sooner.

Should You Avoid PMI?

It depends on your situation. If you can comfortably save and put down 20%, you’ll avoid PMI and lower your monthly costs. But for many people, PMI is worth it if it helps them become homeowners sooner.

The key is balance: don’t stretch your budget too thin just to avoid PMI. Remember, you’ll also need to budget for property taxes, maintenance, and an emergency fund for unexpected expenses.

A Note for First-Time Buyers

If you’re just starting out, PMI can be part of a smart path to homeownership. But saving for a larger down payment can give you more flexibility, reduce your monthly payment, and set you up for long-term success.

At Universal 1 Credit Union (U1), our mortgage team is here to walk you through your options, explain costs like PMI, and help you find the best path toward homeownership. Visit a local office, send a message, email or give us a call. 

mortgageservices@u1cu.org   |  800-762-9555 ext 424  |  NMLS #652486