The 20% rule and why it matters
You avoid private mortgage insurance (PMI) by putting down 20% of the home's purchase price. If you buy a $300,000 house, that means $60,000 down. PMI is an insurance policy that protects the lender if you stop paying—and you pay the premium, not them. It typically costs 0.5% to 1.5% of your loan amount per year, split into monthly payments added to your mortgage bill.
The 20% threshold is not a law. It is the point where most conventional lenders stop requiring PMI. Some lenders will remove it at 15% down if you meet other conditions (higher credit score, larger cash reserves, lower debt). A few will go lower. But 20% is the standard that works across almost all lenders and loan types.
If you put down less than 20%, you will pay PMI until one of three things happens: you reach 20% equity through payments, you refinance into a loan that does not require it, or you reach the midpoint of your loan term (at which point some lenders drop it automatically, though this varies by state and loan type).
Key Takeaways
- 20% down eliminates PMI on conventional loans, but some lenders remove it at 15% down if your credit score and reserves are strong.
- PMI costs 0.5% to 1.5% of your loan amount yearly and stays on your mortgage payment until you own 20% of the home outright.
- Putting down 10% instead of 20% means paying PMI for roughly 10 years on a 30-year mortgage, adding $15,000 to $45,000 in total cost depending on loan size.
- FHA loans require a minimum 3.5% down but charge mortgage insurance that never goes away, even after you reach 20% equity.
- VA and USDA loans have no PMI requirement at any down payment level if you meet program rules.
What happens if you put down less than 20%
PMI does not disappear on its own. You have to request removal once you hit 20% equity, and the lender will verify it through a new appraisal or by comparing your remaining balance to the original purchase price. Some lenders require you to ask; others will notify you when you become may be able to access. Do not assume it will drop automatically.
The timeline depends on how fast you build equity. If you put down 10% and make regular payments, you will reach 20% equity in roughly 10 years on a 30-year mortgage. During those 10 years, PMI stays on every payment. On a $300,000 loan with 10% down ($30,000), PMI might add $150 to $375 per month—that is $18,000 to $45,000 over the decade.
If you refinance before reaching 20% equity, the new loan will also require PMI unless you refinance into a smaller amount or rates drop enough that your home has gained value. Refinancing costs money upfront (typically $2,000 to $5,000), so it only makes sense if you are also lowering your interest rate significantly.
Down payment amounts and PMI costs
| Down Payment | Loan Amount (on $300k home) | PMI Required? | Typical Monthly PMI Cost | Years Until 20% Equity |
|---|---|---|---|---|
| 5% | $285,000 | Yes | $215–$540 | ~15 years |
| 10% | $270,000 | Yes | $150–$375 | ~10 years |
| 15% | $255,000 | Maybe | $75–$190 | ~5 years |
| 20% | $240,000 | No | $0 | N/A |
These figures assume a conventional loan at current rates. PMI cost varies by your credit score, loan type, and the lender's risk assessment. A score of 740+ usually gets you the lower end of the range; a score below 680 pushes you toward the higher end. The loan amount also matters: PMI on a $500,000 loan costs more in dollars than PMI on a $250,000 loan, even at the same percentage rate.
FHA loans: lower down payment, permanent insurance
FHA loans let you put down as little as 3.5%, which sounds like a shortcut around the 20% rule. It is not. FHA loans require mortgage insurance premiums (MIP) that work differently from PMI and never go away.
You pay an upfront MIP of 1.75% of the loan amount at closing (rolled into your loan), plus an annual MIP that stays on your mortgage for the life of the loan. On a $285,000 FHA loan (3.5% down on a $300,000 home), that upfront cost is roughly $5,000, and annual MIP adds $100 to $200 per month forever. You cannot remove it by reaching 20% equity.
FHA makes sense if you cannot save 20% and need to buy soon, or if your credit score is too low for conventional loans. But the permanent insurance cost means you are paying more over time than you would with a conventional loan and PMI, even if you put down only 10%.
VA and USDA loans: no PMI at any down payment
If you are a veteran or active-duty service member, VA loans require no down payment and no PMI, regardless of how much you put down. You pay a one-time funding fee (0.5% to 3.6% depending on your service history and down payment) rolled into the loan, but that is a one-time cost, not an ongoing monthly payment.
USDA loans for rural homebuyers also have no PMI requirement and allow 0% down if you meet income and property location rules. Like VA loans, you pay an upfront may provide fee (1% of the loan amount) instead of monthly insurance.
If you may have access to for either program, the math is usually better than conventional loans with PMI, even if you can afford 20% down. The tradeoff is that both have strict may be able to access rules and property restrictions.
Strategies if you cannot reach 20% down
If saving 20% will take years and you want to buy now, you have real choices. A 10% down payment with PMI for 10 years costs less total than renting and waiting. A 5% down payment makes sense if rates are low and you plan to stay in the home long enough to build equity. The math changes based on your local rent, home prices, and interest rates.
Some buyers use a second mortgage or home equity line of credit to bridge the gap. You put down 10%, take out a second loan for another 10%, and avoid PMI entirely. This works if you can afford two monthly payments and the second loan's interest rate is reasonable. It is more complex than a single mortgage, but it eliminates PMI.
Putting down a larger amount than the minimum but less than 20% is also reasonable. At 15% down, some lenders will drop PMI if your credit score is 740 or higher and you have cash reserves equal to three months of payments. Ask your lender about their specific rules before you commit to a down payment amount.
When PMI removal actually happens
Requesting PMI removal is your job, not the lender's. Once you reach 20% equity (through payments, home appreciation, or both), contact your lender and ask for removal. They will verify your equity through an appraisal or by comparing your loan balance to the original purchase price. If you have reached 20%, they must remove it within 45 days of your request.
Some states have automatic removal rules. If you have paid your mortgage on time and reached the midpoint of your loan term (15 years on a 30-year mortgage), some lenders must remove PMI automatically. But this varies by state and loan type, so do not count on it. Send a written request instead.
Home appreciation can speed this up. If your home value rises 20% in five years, you may reach 20% equity faster than through payments alone. You can request a new appraisal to prove it, though the appraisal costs $300 to $500 out of pocket.
Frequently Asked Questions
Can I avoid PMI by putting down 19.5%?
No. Lenders use 20% as a hard threshold. Some will remove PMI at 19.5% if you also have a credit score above 760 and substantial cash reserves, but this is rare and depends entirely on the lender. Ask your lender about their specific policy before you commit to a down payment amount.
Does PMI ever go away on FHA loans?
Not in the way it does on conventional loans. FHA mortgage insurance stays for the life of the loan if you put down less than 10%. If you put down 10% or more, it drops after 11 years. But you cannot request removal early, even if your home appreciates significantly.
What if I put down 20% but my credit score is very low?
PMI is tied to the loan-to-value ratio (how much you borrow versus the home's price), not your credit score. At 20% down, you owe no PMI regardless of your score. Your score affects the interest rate you get, not whether PMI applies. A lower score means a higher rate, but no PMI.
Is it better to put down 10% now or wait and save 20%?
This depends on rent prices, home appreciation in your area, and interest rates. If rent is high and homes are appreciating, buying now with 10% down and PMI may cost less over five years than renting and saving. If rent is cheap and homes are flat, waiting makes sense. Run the numbers for your specific situation before deciding.
Can I remove PMI by refinancing?
Yes, but only if your home has appreciated or you have paid down the loan enough to reach 20% equity. Refinancing costs $2,000 to $5,000, so it only makes sense if you are also lowering your interest rate by at least 0.5% to 1%. If you are refinancing purely to remove PMI without a rate benefit, the closing costs will eat up your savings.