The 20% threshold is the standard, but it varies by loan type and lender

Private Mortgage Insurance (PMI) is required by most lenders when you put down less than 20% of the home's purchase price. If you put down exactly 20% or more, PMI is not required. However, some loan programs—particularly FHA loans and VA loans—have different rules, and some lenders will accept lower down payments without PMI if you meet other conditions.

The 20% figure is not a law; it is a lending standard. A lender can require PMI at any down payment level they choose, and some will waive it for borrowers with strong credit scores or larger cash reserves. Conversely, some programs allow you to avoid PMI with less than 20% down if you accept a higher interest rate or meet specific income thresholds.

Key Takeaways

  • Conventional loans typically require PMI if your down payment is below 20%, though some lenders waive it for borrowers with credit scores above 760 and substantial reserves.
  • FHA loans require mortgage insurance regardless of down payment size, but the insurance cost is lower with a down payment of 10% or more.
  • VA loans and USDA loans do not require PMI at any down payment level, though they have their own upfront fees.
  • Putting down exactly 20% eliminates PMI but does not always mean the lowest total cost—comparing the interest rate difference against PMI premiums matters.
  • Some lenders offer "lender-paid PMI" where the lender covers the insurance cost but charges a higher interest rate instead.

Conventional loans and the 20% standard

On a conventional loan—the most common type—you need 20% down to avoid PMI. If you put down 19%, 15%, 10%, or 5%, PMI is required. The PMI premium is typically 0.5% to 1.5% of the loan amount per year, paid monthly as part of your mortgage payment. On a $300,000 home with 10% down, PMI might add $150 to $300 per month.

PMI can be removed once you reach 20% equity in the home through a combination of down payment and principal paydown. If you put down 10% and the home appreciates or you pay down the loan, you can request PMI removal once you hit 20% equity. Some lenders will remove it automatically at 22% equity. The timeline depends on your payment schedule and home value changes.

A few lenders will skip PMI with less than 20% down if your credit score is 760 or higher and you have cash reserves equal to at least six months of mortgage payments. This is not common, and rates are usually higher to offset the lender's risk. Ask your lender directly whether this option exists for your situation.

FHA loans require mortgage insurance at any down payment

FHA loans are backed by the Federal Housing Administration and allow down payments as low as 3.5%. However, FHA loans always require mortgage insurance—there is no down payment level that eliminates it. The insurance has two parts: an upfront premium (1.75% of the loan amount, usually rolled into the loan) and an annual premium (0.55% to 0.8% of the loan amount per year).

The annual premium is lower if you put down 10% or more. With less than 10% down, the annual premium lasts the life of the loan. With 10% or more down, the insurance drops off after 11 years. On a $300,000 FHA loan with 3.5% down, the upfront cost is $5,250, and the annual premium might add $165 to $240 per month.

FHA loans make sense when you cannot reach 20% down and do not have access to VA or USDA programs. The trade-off is that mortgage insurance is permanent (unless you refinance) and adds significant cost. Compare the total cost of an FHA loan against a conventional loan with PMI before deciding.

VA and USDA loans do not require PMI

VA loans (for military members, veterans, and surviving spouses) and USDA loans (for rural homebuyers) do not require PMI at any down payment level, including 0% down. This is a major advantage if you are may be able to access. Instead of PMI, VA loans charge a one-time funding fee (1.4% to 3.6% of the loan amount, depending on down payment and prior use) and USDA loans charge an upfront may provide fee (1% of the loan amount) plus an annual fee (0.35% of the loan amount).

On a $300,000 VA loan with 0% down, the funding fee is roughly $4,200 to $10,800, paid upfront or rolled into the loan. On a USDA loan, the upfront fee is $3,000 plus annual fees of about $105 per month. Neither requires PMI, so the total cost is usually lower than a conventional loan with PMI, even with the upfront fees.

If you are may be able to access for either program, the lack of PMI requirement is worth exploring, even if the upfront fees seem high. The monthly savings add up quickly.

Comparing 20% down against lower down payments with PMI

Putting down 20% avoids PMI, but it does not always result in the lowest total cost. A home buyer with $60,000 saved faces a choice: put down 20% on a $300,000 home and borrow $240,000, or put down 10% and borrow $270,000 with PMI.

The 20% option eliminates PMI but requires waiting to save another $60,000. The 10% option lets you buy now and pay PMI for several years. If home prices are rising, interest rates are low, or you expect your income to increase, buying sooner with PMI may cost less overall than waiting. If you are in a stable market and can afford to wait, reaching 20% down avoids years of PMI payments.

Run the numbers with your lender: calculate the total interest paid, PMI costs, and the time to remove PMI on a lower down payment, then compare it to the cost of waiting to reach 20%. The answer depends on your specific numbers and timeline.

Lender-paid PMI and rate buydowns

Some lenders offer lender-paid PMI, where the lender covers the PMI cost but charges you a higher interest rate instead. This shifts the cost from a monthly PMI payment to a higher rate spread across the loan term. It can make sense if you plan to sell or refinance within five to seven years, because the rate premium is paid only once, while PMI would be paid monthly.

Another option is a rate buydown, where you pay points upfront to lower your interest rate. If PMI is expensive, paying points to reduce the rate and the PMI amount together might lower your total monthly payment. This requires cash at closing and works best if you plan to stay in the home long enough to recoup the upfront cost.

Both options require comparing specific numbers from your lender. There is no universal answer—it depends on your rate, PMI cost, how long you stay in the home, and how much cash you have available.

How to know what your lender will require

Different lenders have different PMI policies. One lender might require PMI at 15% down while another waives it at 15% down if your credit score is 780 and you have reserves. Call or email your lender and ask directly: "What is the minimum down payment to avoid PMI on a conventional loan?" and "Are there exceptions based on credit score or reserves?"

If you are shopping multiple lenders, ask each one the same question. The difference in PMI requirements can save you thousands over the life of the loan. Also ask whether PMI can be removed early if you refinance or if the home appreciates significantly.

Get the answer in writing. PMI policies change, and you want to know the exact terms before you commit.

Frequently Asked Questions

Can I remove PMI before I reach 20% equity?

On a conventional loan, you can request PMI removal once you reach 20% equity through a combination of down payment and principal paydown. Some lenders will remove it automatically at 22% equity. The timeline depends on your payment schedule and whether the home has appreciated. FHA mortgage insurance cannot be removed if you put down less than 10%.

Is it better to wait and save 20% or buy now with PMI?

It depends on your market, interest rates, and timeline. If home prices are rising faster than you can save, or if interest rates are low, buying sooner with PMI may cost less overall. If you are in a stable market and can afford to wait, reaching 20% down avoids years of PMI payments. Run the numbers with your lender to compare total costs.

What if I put down 19% instead of 20%?

Most conventional lenders will require PMI if you put down 19%. PMI is typically required at any down payment below 20%, though some lenders with strict credit and reserve requirements may waive it. Ask your specific lender whether they have exceptions.

Do I have to pay PMI upfront or monthly?

PMI is usually paid monthly as part of your mortgage payment. Some lenders allow you to pay it upfront as a lump sum at closing, which can lower the total cost. Ask your lender whether upfront PMI payment is an option and how much you would save.

Can I refinance to remove PMI?

Yes. If your home has appreciated or you have paid down the principal, you may be able to refinance into a new loan without PMI. Refinancing costs money in closing costs and fees, so compare the cost of refinancing against the cost of keeping PMI for the remaining time until you reach 20% equity naturally.