--- title: What Is PMI? Everything You Need to Know About Private Mortgage Insurance description: 'Everything you need to know about the hidden cost hitting 52% of millennial home buyers: PMI, or private mortgage insurance.' authors: - name: Kevin Max url: https://money.com/author/kevin-max/ at_money_since: 2019 articles: 5 covers: - Housing - Investing - Loans - Personal Finance - Taxes former_staff: true updaters: - name: Brenden Rearick role: Reporter url: https://money.com/author/brenden-rearick/ bio: Brenden Rearick is a former news reporter at Money who specialized in mortgages, real estate, and personal finance topics. education: University of Pittsburgh, BA at_money_since: 2023 articles: 133 covers: - Housing - Banking - Career Advice - Credit - Credit Cards - Economy and Politics - Education - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Retirement - Shopping - Taxes - Technology former_staff: true published: '2024-03-25T18:43:45.000Z' modified: '2024-03-25T18:43:45.000Z' section: Housing tags: - Guides word_count: 716 canonical: https://money.com/millennial-home-owner-pmi/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![What Is PMI? Everything You Need to Know About Private Mortgage Insurance](https://img.money.com/2019/09/houseinsurance.jpg?quality=85&w=1012&h=569&crop=1) ## PMI (Private Mortgage Insurance) PMI stands for Private Mortgage Insurance. The purpose of PMI is to protect the lender in the event you fail to make your mortgage payments. PMI can be a requirement if you are putting less than 20% of the purchase price towards a down payment on a conventional loan. You may also see PMI as a requirement if you are refinancing (again, with a conventional loan) and your home equity is less than 20%. **Also known as:** PMI Insurance, Private Mortgage Insurance **First Seen:** 1956 Buying your first home isn’t easy. And for many millennials, homeownership may cost more than they think. That's because many new homeowners end up paying an extra fee on top of their regular mortgage payments. This fee comes in the form of private mortgage insurance, or PMI, a form of mortgage insurance that can add significant homebuying costs. It’s a type of policy that protects the lender in the event you fail to make your mortgage payments. While the extra payments can help you get into your first home quicker, it’s easy to get caught by surprise. “Going in most first-time home buyers don’t know about private mortgage insurance,” says Bill Banfield, executive vice president of capital markets for Quicken Loans. Homebuyers are typically on the hook for private mortgage insurance when they [buy a house](https://money.com/how-to-buy-a-house/) with less than 20% down. It’s not insurance for you, the homeowner, but for your lender in case you default on your mortgage. The [mortgage lender](https://money.com/best-mortgage-lenders/) charges PMI based on the total loan amount and adds this cost atop homeowners’ monthly mortgage payments. For example, the average price of the millennial starter home in 2022 was $325,000, according to data from Realtor.com. If the new buyers’ down payment was 10% (or $32,500) and their 30-year mortgage loan is $292,500, PMI costs would average around $150 per month, changing depending on the buyers’ credit score, the loan-to-value and debt-to-income ratios. That adds up to an extra $1,800 a year. The nice thing is that PMI doesn’t last the duration of the loan and there are ways to get out of it. Here’s how to reduce or ditch PMI. ## **Save enough for a 20% down payment** The most obvious way to avert PMI from the beginning is to wait until you have that 20% down payment amount upfront. But this could take years, and the rising value of houses in that market could keep potential buyers frustrated chasing the growing down payment. A relative can also make a gift for the balance to bring your down payment to 20%. There are some restrictions, but generally, if a buyer has a letter with these details, it will pass muster with the lender’s underwriters. ## Don't have the 20% down? No worries! ### With an FHA loan from Rocket Loans (NMLS #3030), you can purchase your first home with a down payment as low as 3.5%. Click below to see if you qualify today! [VIEW RATES](https://money.com/pr/x931b62b40e8?ap_referrer=%2Fmillennial-home-owner-pmi%2F) ## **Get to 22% home equity** When a buyer’s equity has reached 22% of the home’s original appraised value, the loan servicer is required to drop PMI. In many cases, however, homeowners can petition their lenders to drop PMI when they have built up between 20% and 25% equity in the house without having to [refinance their mortgage](https://money.com/best-mortgage-refinance/). Keep in mind that lenders won’t consider removing PMI until after about a two-year “seasoning period,” according to Keith Gumbinger, vice president of HSH.com, a mortgage information resource, “They could still deny your request,” he notes. ## **Monitor your property appreciation** Another way is to track your property appreciation. If your home jumps in appraised value, your equity in the home will increase. If that bump gets you over the 20% equity threshold, you can ask your lender to end PMI. ## **Don’t go it alone** Couples can take advantage of a dual-income mortgage loan not just to avoid higher interest rates but also to reduce any required PMI payments. “Something new, we’ve seen recently is that PMI is lower with two incomes on the loan than with a single borrower,” Gumbinger says. ## **Consider an FHA loan** One way to avoid private mortgage insurance entirely is to obtain an [FHA loan](https://money.com/what-is-an-fha-loan/) through the Federal Housing Administration. Private mortgage insurance doesn’t extend to [loans granted by the FHA](https://money.com/best-lenders-for-fha-loans/), because PMI only covers conventional mortgage lenders. However, it’s worth noting that FHA loans have their own added costs. FHA borrowers have to pay FHA mortgage insurance, but it tends to be less expensive than PMI costs. ## **Know the PMI increments** What most first-time buyers don’t consider is that PMI rates are applied in increments. So don’t automatically assume that putting down more money will reduce your PMI. It may make more sense to hold on to those additional funds for closing costs or an emergency fund. Here is a [handy calculator](https://www.hsh.com/down-payment-calculator.html) to decide whether or not to bump up your down payment. Ultimately, uncovering the hidden cost of PMI will help you plan for its timely demise. *(An earlier version of this story misstated Keith Gumbinger's name.)* ## Buy your new home with more convenience and less hassle ### A Mortgage Expert at Rocket Mortgage (NMLS #3030) can lend you a hand for a smoother process. Your dream home is possible. Click below to make it happen. [View Rates](https://money.com/pr/u918d32af718?ap_referrer=%2Fmillennial-home-owner-pmi%2F) ![](https://s3.consumersadvocate.org/prd/image/image/26681/medium_57f09f10-efb8-487d-a73e-5f7d605144eb.png) Imagine finally owning your dream home — Rocket Mortgage (NMLS #3030) can help! [View Rates](https://money.com/pr/t39f99e0e0ab?ap_referrer=%2Fmillennial-home-owner-pmi%2F) ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/millennial-home-owner-pmi/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Housing", "item": "https://money.com/housing/" }, { "@type": "ListItem", "position": 3, "name": "Home Buying", "item": "https://money.com/home-buying/" }, { "@type": "ListItem", "position": 4, "name": "What Is PMI? 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