How to Avoid PMI: 7 Strategies for Homebuyers (2026)
Private mortgage insurance can add hundreds of dollars to your monthly payment for years. The good news: you have more options than simply saving up a 20 percent down payment. Here are seven strategies homebuyers use to avoid PMI — with honest trade-offs for each.
Why Should You Avoid PMI?
PMI is a real and significant cost. Consider a buyer purchasing a $350,000 home with 10 percent down ($35,000). The loan amount is $315,000, and with a 700 credit score, the PMI rate is approximately 0.70 percent per year.
- Monthly PMI cost: $315,000 × 0.70% ÷ 12 = $184/month
- Years until 80% LTV (standard payments, 7% rate): approximately 7 years
- Total PMI paid before reaching 80% LTV: approximately $15,456
That is over fifteen thousand dollars paid for insurance that protects the lender — not you. For many borrowers, eliminating PMI is one of the highest-return financial moves available at the time of purchase. Each strategy below trades something different to get there.
To understand exactly what PMI is and how it's calculated, see our article What Is PMI? Private Mortgage Insurance Explained.
Strategy 1: Put 20% Down
The most straightforward approach: arrive at closing with a down payment equal to at least 20 percent of the purchase price, and PMI is never required. On a $350,000 home, that is $70,000 down — leaving a $280,000 loan at exactly 80 percent LTV.
Pros: Eliminates PMI from day one. Lower monthly payment. Lenders may offer slightly better rates for well-collateralized loans.
Cons: Requires a large amount of liquid capital. Depending on your local market and investment alternatives, tying up $70,000 in home equity may not be the optimal financial move. The S&P 500 has historically returned roughly 10 percent annually over long periods; if your mortgage rate is 7 percent and you pay PMI of $150/month, the math on investing the extra $35,000 instead of putting 20 percent down may favor investing — but this depends heavily on your tax situation, risk tolerance, and time horizon.
Best for: Buyers who have the cash, want simplicity, and prefer avoiding any form of insurance premium from the start.
Strategy 2: Piggyback Loan (80/10/10)
A piggyback loan splits your financing into two mortgages to keep the first mortgage at exactly 80 percent LTV — below the PMI threshold — without requiring a 20 percent down payment.
The most common structure is the 80/10/10: an 80 percent first mortgage, a 10 percent second mortgage (typically a home equity loan or HELOC), and a 10 percent down payment from the buyer. The result: no PMI on the first mortgage because it never exceeds 80 percent LTV.
How it works in practice: On a $350,000 home, the first mortgage is $280,000 (80%), the second is $35,000 (10%), and you bring $35,000 to closing (10%). Total out-of-pocket is the same as a 10 percent down payment on a single loan — but no PMI.
Pros: Avoids PMI entirely. The combined payment is often lower than a single loan with PMI, especially in a low PMI-rate environment.
Cons: The second mortgage carries a higher interest rate than the first — often 1 to 3 percentage points higher. Qualifying for two simultaneous loans is harder and requires good credit and solid debt-to-income ratios. HELOCs (variable-rate second mortgages) carry rate risk if interest rates rise. Selling or refinancing with a second mortgage is more administratively complex.
Best for: Buyers with strong credit, stable income, and a 10 percent down payment who want to avoid both PMI and a large upfront investment.
Strategy 3: Lender-Paid PMI (LPMI)
With lender-paid PMI, the lender covers the PMI premium and recoups the cost through a higher interest rate on your loan — typically 0.25 to 0.75 percentage points above the standard rate. There is no separate PMI line item on your monthly statement.
Example comparison on a $315,000 loan:
- Borrower-paid PMI: 7.00% rate + $184/month PMI = effective total payment of ~$2,280/month; PMI drops off after ~7 years
- Lender-paid PMI: 7.50% rate, no PMI = ~$2,204/month; higher rate is permanent
In the early years, LPMI produces a lower combined payment. But once borrower-paid PMI would have been cancelled (around year 7 in this example), the LPMI borrower is still paying the higher rate — indefinitely. By year 10, the LPMI borrower has paid more.
Pros: Lower apparent monthly payment. Simplicity — no separate PMI account or cancellation process to manage.
Cons: The higher rate cannot be cancelled without refinancing. If you keep the loan long-term, LPMI almost always costs more than borrower-paid PMI. If rates drop and you refinance, you lose the benefit entirely.
Best for: Buyers who plan to sell or refinance within 5 to 7 years, before the break-even point where PMI cancellation would have saved money.
Strategy 4: VA Loan (No PMI, No Down Payment Required)
VA loans, guaranteed by the U.S. Department of Veterans Affairs, do not require PMI under any circumstances — even with zero down payment. This is one of the most valuable benefits available to eligible veterans, active-duty service members, and qualifying surviving spouses.
Instead of PMI, VA loans charge a one-time VA funding fee — typically 2.15 percent for a first-time VA purchase with no down payment (for Regular Military). This fee can be financed into the loan. Disabled veterans with a VA disability rating of 10 percent or higher are exempt from the funding fee entirely.
On a $315,000 loan with a 2.15 percent funding fee financed in: total loan amount is $321,773. At 7.0 percent for 30 years, the monthly P&I is approximately $2,141 — with no PMI, ever.
Compare that to the same loan without VA eligibility: $315,000 at 7.0% = $2,096/month + $184 PMI = $2,280/month for 7+ years.
Use the VA Loan Calculator to see how a VA loan compares to a conventional loan for your specific numbers. For full eligibility details, see What Is a VA Loan?
Best for: Any eligible veteran or service member purchasing a primary residence. The VA loan is almost always the best mortgage product available to those who qualify.
Strategy 5: USDA Loan (No PMI for Rural Properties)
USDA loans, backed by the U.S. Department of Agriculture, are available for homes in eligible rural and suburban areas and require no down payment. They do not charge PMI.
Instead, USDA loans charge two fees: a one-time upfront guarantee fee (currently 1.0 percent of the loan amount) and an annual fee (currently 0.35 percent of the outstanding balance), which is added to monthly payments. These fees are significantly lower than typical PMI rates.
Eligibility requirements: The property must be in a USDA-eligible area (check the USDA property eligibility map at usda.gov). Household income cannot exceed 115 percent of the area median income. Borrowers must meet standard credit and debt-to-income requirements.
Best for: Buyers in eligible rural or suburban areas who meet income limits and want a zero-down loan with lower mortgage insurance costs than FHA.
Strategy 6: Down Payment Assistance Programs
Down payment assistance (DPA) programs — offered by state housing finance agencies, local governments, and some nonprofits — can provide grants or low-interest secondary loans to help buyers reach the 20 percent threshold (or close to it), avoiding or reducing PMI.
Key programs to research:
- State Housing Finance Agency programs: Every U.S. state has an HFA that offers some form of DPA, typically for first-time homebuyers and/or low-to-moderate income buyers. Programs vary widely by state.
- CHENOA Fund: A national DPA program offered through CBC Mortgage Agency, providing second mortgages to cover down payments on FHA and conventional loans.
- HUD-approved housing counseling: HUD maintains a list of approved counselors who can identify local DPA programs specific to your county and income level. Find one at hud.gov.
- Employer-assisted housing programs: Some large employers, hospitals, and universities offer DPA as a benefit for employees purchasing in specific areas.
Best for: First-time homebuyers and moderate-income buyers who qualify for assistance programs in their area.
Strategy 7: Pay Down to 80% LTV and Cancel PMI
If you already have a mortgage with PMI, paying it down aggressively to reach 80 percent LTV and then requesting cancellation is a guaranteed, risk-free return equal to your PMI rate on every extra dollar you put toward principal.
Under the Homeowners Protection Act, you have the right to request PMI cancellation in writing once your loan balance reaches 80 percent of the original appraised value, as long as you have a good payment history. Your lender must respond within 30 days.
If your home's value has increased significantly, some lenders will accept a new appraisal showing your current LTV is at or below 80 percent, even if the balance hasn't dropped that far based on original purchase price. Contact your servicer and ask specifically about their appraisal-based cancellation policy.
Use the Mortgage Payoff Calculator to see exactly how much extra you'd need to pay each month to reach 80% LTV by a specific date.
Best for: Existing homeowners who already have PMI and want to eliminate it as quickly as possible without refinancing.
How Do the 7 PMI Avoidance Strategies Compare?
The table below compares all seven strategies at a glance for a buyer purchasing a $350,000 home.
| Strategy | Upfront Cost | Monthly PMI Impact | PMI Gone When? | Best For |
|---|---|---|---|---|
| 20% down payment | $70,000 | None | Never needed | Buyers with large savings |
| 80/10/10 piggyback | $35,000 + closing costs for 2nd loan | None (2nd mortgage payment instead) | Never needed | Strong-credit buyers with 10% down |
| Lender-paid PMI (LPMI) | None | None (higher rate instead) | Never (without refinancing) | Short-term homeowners (<7 yrs) |
| VA loan | Funding fee (~2.15% financed) | None | Never needed | Eligible veterans and service members |
| USDA loan | 1.0% guarantee fee (financeable) | 0.35%/yr annual fee (lower than PMI) | Fee lasts loan term, but lower cost | Rural/suburban buyers meeting income limits |
| Down payment assistance | Varies; often minimal | None if DPA brings you to 20% | Never needed (if 20% reached) | First-time / moderate-income buyers |
| Pay down to 80% LTV | Extra principal payments | PMI ends at 80% LTV | When balance hits 80% LTV | Existing homeowners with PMI |
How Can You Calculate Your PMI Savings?
Ready to see what PMI is costing you — or what you'd save by eliminating it? Use the PMI Calculator to estimate your monthly and total PMI cost based on your specific loan details.
Frequently Asked Questions
Can I remove PMI early with a new appraisal?
Is a piggyback loan always cheaper than PMI?
Does PMI cancel automatically when I reach 80% LTV?
What credit score do I need to use a piggyback loan to avoid PMI?
Can I put less than 20% down and still never pay PMI?
Is PMI tax-deductible in 2026?
Sources
- Consumer Financial Protection Bureau — What is private mortgage insurance?
- Fannie Mae — Understanding Mortgage Insurance
- HUD — Find a Housing Counselor (Down Payment Assistance)
This article is for informational purposes only and does not constitute financial, legal, or mortgage advice. Rates, fees, and program availability change frequently. Consult a licensed mortgage professional for guidance specific to your situation.