How to avoid PMI: five strategies compared by cost and eligibility
PMI adds 0.2–2% of your loan balance per year to your payment. This guide compares all five ways to avoid it — 20% down, piggyback loans, lender-paid PMI, VA loans, and PMI cancellation — with a full cost analysis of each strategy.
PMI costs 0.2–2% of your loan balance per year — on a $400,000 loan, that's $800–$8,000 annually until you reach 80% LTV. There are five legitimate strategies to avoid it. Which one is cheapest depends on your credit score, down payment, VA eligibility, and how long you plan to own the home.
The five PMI avoidance strategies at a glance
| Strategy | How it works | Best for | Trade-off |
|---|---|---|---|
| 20% down payment | Stay below 80% LTV from day one | Buyers with significant savings | Large upfront capital requirement |
| VA loan | VA guaranty replaces PMI entirely | Eligible veterans, active duty, surviving spouses | Funding fee (waived for disabled vets) |
| Piggyback loan (80/10/10) | Split financing — first mortgage at 80% + second at 10% | Buyers with 10% down, strong credit | Second mortgage rate + two payments to manage |
| Lender-paid PMI (LPMI) | Lender pays PMI in exchange for higher rate | Buyers who won't reach 80% LTV quickly | Rate increase is permanent — not cancelable |
| Borrower-paid PMI + early cancellation | Pay PMI temporarily, cancel at 80% LTV | Buyers expecting appreciation or making extra payments | PMI paid during the accumulation period |
Strategy 1: 20% down payment
The cleanest solution — no PMI, no second mortgage, no higher rate. The downside is the capital requirement: 20% on a $500,000 home is $100,000 out of pocket before closing costs. The affordability calculator shows how different down payments affect your required income and monthly payment.
Strategy 2: VA loan (best option if you qualify)
VA loans have no PMI requirement — ever. The funding fee (2.15% for first use, financed into the loan) is a fraction of lifetime PMI costs for most borrowers. Veterans with a 10%+ disability rating pay no funding fee at all. Check VA loan eligibility requirements — millions of eligible veterans never use this benefit.
Strategy 3: Piggyback loan (80/10/10)
Avoiding PMI by splitting your financing requires discipline: you're taking on a second mortgage (usually a HELOC at prime + 1–2%) to keep the first mortgage at 80% LTV. This works best when your PMI rate (credit-score-based) would be high and when the second mortgage rate is competitive. Bankrate's piggyback loan cost comparison models total payment across credit score tiers.
How to proceed: the decision steps
- 1 Calculate your PMI cost to benchmark
Multiply your loan balance by your PMI rate (typically 0.2%–2% based on credit score and LTV). On a $400k loan at 0.8%, that's $3,200/year ($267/month). This is what you're trying to avoid or eliminate.
- 2 Check your VA or USDA eligibility first
VA loans (for eligible veterans) have zero PMI permanently. USDA loans (rural/suburban properties) have a lower guarantee fee. If you qualify, these options beat all others on cost.
- 3 Compare 20% down vs piggyback loan
If you have less than 20% saved, a piggyback (80/10/10) loan avoids PMI by splitting the financing into a first mortgage (80% LTV) and a second mortgage (10%), with 10% down. Compare the second mortgage rate to your PMI cost.
- 4 Consider lender-paid PMI (LPMI)
The lender pays PMI upfront in exchange for a slightly higher interest rate (typically +0.25–0.375%). This eliminates the monthly PMI line item but raises your rate permanently — unlike borrower-paid PMI that cancels at 80% LTV.
- 5 Plan to cancel PMI if you pay it initially
Under the HPA, lenders must cancel PMI automatically at 78% LTV (original purchase price). You can request cancellation at 80% LTV. Accelerated payments or appreciation can get you there faster — use the extra payment calculator to model the timeline.
PMI cost by credit score: what you're actually paying
| Credit score | PMI rate (5% down) | Annual cost on $400k loan | Monthly PMI |
|---|---|---|---|
| 760+ | 0.22% | $880 | $73 |
| 740–759 | 0.37% | $1,480 | $123 |
| 720–739 | 0.52% | $2,080 | $173 |
| 700–719 | 0.77% | $3,080 | $257 |
| 680–699 | 1.02% | $4,080 | $340 |
| 660–679 | 1.37% | $5,480 | $457 |
| 620–659 | 1.77% | $7,080 | $590 |
Rates are approximate; actual PMI pricing varies by lender and insurer. Source: myFICO rate comparison tool.
External references
- CFPB — When can PMI be removed?
- CFPB — FHA MIP vs conventional PMI
- Bankrate — Piggyback loan analysis
- myFICO — Credit score vs mortgage rate and PMI cost
- CFPB — Loan options including LPMI
- VA — Home loan benefit overview
Common questions
At exactly what LTV does PMI cancel automatically?
Under the federal Homeowners Protection Act (HPA), lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price — based on your amortization schedule, not the current market value. You can request early cancellation at 80% LTV based on the original value. If your home has appreciated significantly, you may be able to request cancellation at 80% of current appraised value, but lenders are not required to use current value (they may require a new appraisal and set their own policies).
What is a piggyback loan (80/10/10) and how does it avoid PMI?
An 80/10/10 piggyback structures the purchase as two loans: a first mortgage at 80% LTV (avoiding the PMI threshold) and a second mortgage (typically a HELOC) at 10% of the purchase price, with 10% as a cash down payment. Since neither loan exceeds 80% LTV individually, PMI is not required. The second mortgage typically carries a higher rate (prime + 1–2%) and requires repayment. Bankrate's piggyback loan analysis compares the total cost at various credit scores vs paying PMI.
Is lender-paid PMI (LPMI) better than borrower-paid PMI?
It depends on how long you keep the loan. LPMI eliminates the monthly PMI charge but permanently raises your rate (typically 0.25–0.375%). Borrower-paid PMI is cancelable at 80% LTV — so if you expect to reach that threshold within 5–7 years through payments or appreciation, borrower-paid PMI will usually be cheaper over the life of the loan. If you plan to stay in the home for 20+ years without refinancing, LPMI may win. CFPB's loan options guide explains lender-paid vs borrower-paid PMI differences.
Can making extra payments eliminate PMI sooner?
Yes. Accelerated principal payments reduce your loan balance faster, pushing you to the 80% LTV threshold sooner. On a $400,000 loan with $300 extra/month, you can reach 80% LTV approximately 6 years earlier than the standard amortization schedule. Use the extra payment impact calculator to model the exact months saved on your loan. Once you believe you've reached 80% LTV, contact your servicer and formally request PMI cancellation — it won't happen automatically until 78%.
Does FHA MIP work the same way as PMI?
No. FHA's Mortgage Insurance Premium (MIP) is structured differently from conventional PMI in two important ways: (1) MIP includes an upfront premium of 1.75% of the loan balance (rolled into the loan); (2) Annual MIP of 0.55% does not automatically cancel for loans originated after June 2013 with less than 10% down — it lasts the entire loan term. The only way to eliminate MIP on such a loan is to refinance into a conventional loan once you reach 20% equity. CFPB's FHA guide explains MIP in full.
What credit score is needed to get the best PMI rate?
PMI rates are credit-score-based, unlike FHA MIP. At 760+, PMI on a 5% down conventional loan runs about 0.2–0.3%. At 680, the same loan may carry PMI of 0.8–1.0%. At 620 (the minimum for most conventional loans), PMI can be 1.5–2.0%. The difference between a 680 and 760 score on a $400,000 loan can mean $200–$280/month more in PMI. myFICO's rate comparison tool shows how your credit score affects both your interest rate and PMI cost simultaneously.
See PMI on your scenario: US mortgage calculator · Extra payment impact · PMI glossary entry