You don’t need 20% down to avoid PMI

PMI (private mortgage insurance) is usually required for anyone buying a home with less than 20% down.

Understandably, many home buyers would rather avoid PMI.

That’s because PMI is an added cost for the , but it only protects the if you can’t pay your loan back.

Keep in mind that there are benefits to paying private mortgage insurance, like the ability to buy a house with just 3% down.

But if you’d rather avoid PMI altogether, there are multiple ways to do so — even if you don’t have a 20% down payment. Here’s how.   

In this article (Skip to…)

• Get the lender to pay your mortgage insurance
• Use a “piggyback loan” with 10% down and no PMI
• Find a low-down-payment program with no PMI
• See if you qualify for a VA loan
• How much does PMI cost?
• PMI versus FHA MIP
• How do I get rid of PMI once I’ve purchased a home?
• Check your no-PMI loan options

Another way to avoid PMI is by using a piggyback mortgage.

This is a unique loan structure where the buyer only needs 10% down.

But thanks to a second mortgage, which covers another 10%, the buyer effectively has a 20% down payment and does not have to get mortgage insurance.

The most common piggyback loan arrangement looks like this:

• An 80% first mortgage
• A 10% second mortgage (usually a home equity line of credit)
• And a 10% down payment

This structure is often called an “80/10/10.”

For buyers of condominiums, 75/15/10 piggyback loans are more common, mainly because mortgage rates are higher for condos with less than 25% down.

The second mortgage is often from the same bank or lender as the first mortgage.

But you might have to find your own second mortgage if your lender does not offer them. A credit union or local bank is a great source of these loans.

Just make sure the second lender knows you are purchasing a home and you need the financing completed on a specific day. Let them know your closing date and make sure they can accommodate a quick closing if necessary.

Piggyback loans are a little-known type of mortgage that can be a great way to avoid PMI with less than 20% down.

These may even have additional perks for first-time home buyers, lower-income home buyers, or certain professionals (like teachers and doctors).

Here are just a few examples of no-PMI mortgage programs:

• Neighborhood Assistance Corporation of America (NACA) —This organization focuses on providing homeownership opportunities to low-to-moderate income individuals or those buying in underserved communities. NACA touts no down payment, no closing costs, no points, below-market rates, and best of all, no PMI. Keep in mind that this loan is only for those who fit their criteria, and it’s unclear how many qualify for the loan
• Bank of America — At the time of this writing, Bank of America offers the Affordable Loan Solution mortgage. It requires just 3% down and does not require PMI. Pre-homeownership counseling is required through B of A’s network of counselors, and maximum income limits apply
• CitiMortgage —This nationwide lender offers the HomeRun Mortgage which offers loans up to $510,400 (higher in high-cost areas) with 3% down and no PMI. Homeownership education is required, but these courses typically require a small time commitment
• Movement Mortgage — This all-digital lender offers the “Dream to Own” mortgage, a conventional loan program with no mortgage insurance required. It also allows down payment and closing cost assistance up to 4% of the home price. A minimum credit score of 660 is required to qualify
• Caliber Home Loans — If you’re buying a high-priced home, Caliber’s “Elite Access” program offers jumbo loans with just 5% down and no mortgage insurance. Currently, a jumbo loan is anything over $510,400 in most areas. Borrowers need at least a 740 FICO score to qualify, and 9 months’ worth of mortgage payments in ‘cash reserves’ (savings)

The tradeoff here is that no-PMI loans usually have higher rates. And, they often require a higher credit score to qualify.

Keep in mind that lenders can change proprietary mortgage programs at any time.

These programs are current at the time of writing, but double check with the lender to see what’s available before applying.

For eligible veterans, service members, and other armed forces personnel, a VA loan is usually the best way to avoid PMI.

VA loans are available with 0% down, and they’re the only government-backed mortgage option with no monthly mortgage insurance payments.

There a one-time ‘funding fee’ that borrowers have to pay to use a VA loan.

Lack of PMI and exceptionally low rates make the VA loan the best option for most eligible VA homebuyers.

Depending on your down payment and whether you’ve used a VA loan before, the funding fee is between 1.4% and 3.6% of the loan amount. But the total cost will likely be cheaper than what others pay for monthly mortgage insurance.

The lack of PMI, coupled with exceptionally low rates, is what makes a VA loan such a great deal for qualified veterans.

Recap video: How to avoid PMI

You can read more about how to remove MIP here.

Using a refinance, you can eliminate any type of mortgage insurance as long as your new loan amount is 80% or less of your home’s current value.

There are restrictions that sometimes apply, however. Depending on your lender and provider of PMI, you may be asked to show:

• A history of timely payments
• Aminimum number of payments made (usually 12)
• Or, the absence of a second mortgage

Lenders are required to update you annually on your PMI cancellation options.

This includes notice of the Homeowners Protection Act of 1998, which required lenders to automatically terminate PMI once the homeowner reaches 78% loan-to-value (LTV), based on the lesser of the purchase price or appraised value from the date of purchase or refinance.

Note, though, that you must be current on your loan when you reach 78% LTV in order to have your PMI removed. If you’re not current at that time, your PMI will be terminated instead on the first day of the first month following the date you get current.

The Homeowners Protection Act of 1998 also states that homeowners are permitted to request PMI cancellation once they 80% LTV, based on the home’s original value.

However, the lender will not contact you when you are eligible for PMI cancellation. You will have to contact your lender.