Buying a house in the US is expensive, and saving a massive 20% down payment is out of reach for many first-time buyers. The good news? You can buy a house with as little as 3% or 5% down. The bad news? You will have to pay for PMI — Private Mortgage Insurance.
This guide covers everything you need to know: what PMI is, how PMI is calculated with the actual formula lenders use, how much PMI costs per month, how to remove PMI early, and the critical differences between PMI and MIP. We also include a state-by-state average PMI rates table so you can estimate your cost by location.
What Is PMI? (Private Mortgage Insurance)
PMI stands for Private Mortgage Insurance. When you put down less than 20% on a conventional loan, the bank sees you as a higher risk. If you default on the loan and they have to foreclose on the house, the lender wants a financial safety net.
Here is the brutal truth about PMI: you pay for it, but it entirely protects the lender. It offers you absolutely zero financial protection. It is simply a fee you pay to the bank for the privilege of buying a home with a smaller down payment.
PMI is provided by private insurance companies — not the government. The most common PMI providers include MGIC, Radian, Essent, National MI, and Arch MI. Your lender selects the insurer, but the cost is passed directly to you as a monthly fee added to your mortgage payment.
How Is PMI Calculated?
PMI is not a random fee — lenders calculate it using a specific formula based on your loan details and risk profile. Understanding this formula helps you predict exactly how much you will pay.
The PMI Formula
Where PMI Rate is an annual percentage (typically 0.3% to 1.5%) determined by your credit score, down payment percentage, and loan-to-value (LTV) ratio.
Let's walk through a real example. Say you buy a $350,000 home and put 10% down ($35,000). Your loan amount is $315,000. If your credit score is 720, your PMI rate might be approximately 0.58% per year.
- Annual PMI cost: $315,000 × 0.0058 = $1,827
- Monthly PMI payment: $1,827 ÷ 12 = $152.25/month
If that same buyer had a credit score of 660 instead, the PMI rate jumps to around 1.10%:
- Annual PMI cost: $315,000 × 0.011 = $3,465
- Monthly PMI payment: $3,465 ÷ 12 = $288.75/month
That is a $136.50/month difference — or $1,638 per year — entirely because of a lower credit score. This is why improving your credit before applying for a mortgage can save you thousands.
Factors That Determine Your PMI Rate
| Factor | Impact on PMI Rate |
|---|---|
| Credit Score | Higher score = lower rate. 760+ gets the best rates (0.3–0.5%). Below 680 can mean 1.0–1.5%. |
| Down Payment % | Larger down payment = lower rate. 15% down is cheaper than 5% down. |
| Loan-to-Value (LTV) | Lower LTV = lower risk = lower PMI. 85% LTV is cheaper than 95% LTV. |
| Loan Type | Fixed-rate loans typically have lower PMI than adjustable-rate mortgages (ARMs). |
| Loan Term | Shorter terms (15-year) often qualify for slightly lower PMI rates. |
How Much Is PMI Per Month?
PMI is not a flat rate. It depends on your credit score, the size of your down payment, and the loan amount. Typically, PMI costs between 0.5% to 1.5% of your total loan amount per year, which translates to roughly $30 to $150 per month per $100,000 borrowed.
For example, if you buy a $400,000 home and put down 5% ($20,000), your loan amount is $380,000. If your PMI rate is 1% annually, you will pay $3,800 a year, or $316 every single month in PMI fees. Over five years, that is nearly $19,000 evaporating into thin air.
PMI Cost by Credit Score (on a $300,000 Loan, 5% Down)
| Credit Score | Estimated PMI Rate | Annual Cost | Monthly PMI Payment |
|---|---|---|---|
| 760+ | 0.35% | $1,050 | $88 |
| 740–759 | 0.45% | $1,350 | $113 |
| 720–739 | 0.58% | $1,740 | $145 |
| 700–719 | 0.75% | $2,250 | $188 |
| 680–699 | 0.95% | $2,850 | $238 |
| 660–679 | 1.10% | $3,300 | $275 |
| 640–659 | 1.35% | $4,050 | $338 |
| 620–639 | 1.50% | $4,500 | $375 |
PMI Calculator — Estimate Your Cost
Stop guessing and see exactly how PMI changes your monthly mortgage payment. Our free mortgage calculator automatically factors in PMI when your down payment is below 20%. Simply enter your home price, adjust the down payment slider, and watch the PMI line item appear in your payment breakdown.
🧮 Calculate Your Monthly PMI Payment
Enter your home price and down payment to see your estimated PMI cost, total monthly payment, and how much you save when PMI drops off.
Use the Free Mortgage Calculator →You can also use our Extra Payments Calculator to see how making additional principal payments can help you reach 80% LTV faster and eliminate PMI years ahead of schedule.
How to Remove PMI Early
Nobody wants to pay PMI longer than necessary. Here are four proven strategies to get rid of it as fast as possible.
1. Request Cancellation at 80% LTV
Under the Homeowners Protection Act of 1998, you have the legal right to request PMI cancellation once your mortgage balance reaches 80% of the home's original purchase price. Submit a written request to your loan servicer. Requirements typically include:
- Good payment history (no 30-day late payments in the last 12 months)
- No subordinate liens on the property
- Current on your mortgage payments
2. Wait for Automatic Cancellation at 78% LTV
If you never file a request, your lender is legally required to automatically cancel PMI once your mortgage balance hits 78% of the original purchase price. This happens on the date you are scheduled to reach 78% based on your original amortization schedule. However, this often takes 7 to 10 years of standard payments — so requesting at 80% saves you money.
3. Leverage Home Appreciation (Get a New Appraisal)
If your local housing market has appreciated significantly, your home's current value might put your LTV below 80% — even if you have not paid down enough principal yet. In this case, you can request PMI removal based on a new appraisal.
Most lenders require:
- At least 2 years of ownership for an 80% LTV threshold
- At least 5 years of ownership for a 75% LTV threshold (some lenders)
- A new professional appraisal ($400–$600), which you pay for
If your appraisal confirms the lower LTV, you can ditch PMI immediately. A $200/month PMI charge pays for the appraisal cost in under three months.
4. Make Extra Principal Payments
Accelerate your path to 80% LTV by making additional principal payments each month. Even an extra $200–$500 per month can shave years off your PMI obligation while simultaneously saving thousands in long-term interest. Use our Extra Payments Calculator to model this.
5. Refinance Into a New Loan
If your home has gained significant equity and interest rates are favorable, refinancing into a new conventional loan with 20%+ equity eliminates PMI entirely. You will pay closing costs on the new loan (typically 2–5% of the loan amount), so run the numbers to make sure the PMI savings outweigh the refinancing costs. Try our Refinance Calculator to compare.
PMI vs MIP — What's the Difference?
These two types of mortgage insurance sound similar but work very differently. PMI applies to conventional loans, while MIP (Mortgage Insurance Premium) applies to FHA loans backed by the Federal Housing Administration.
🏦 PMI (Private Mortgage Insurance)
- Required on conventional loans with less than 20% down
- Provided by private insurance companies
- Rate based on credit score and LTV (0.3%–1.5%)
- Can be removed at 80% LTV (request) or 78% LTV (automatic)
- No upfront premium required
- Better rates for borrowers with excellent credit
🏛️ MIP (FHA Mortgage Insurance Premium)
- Required on all FHA loans regardless of down payment
- Backed by the federal government
- Fixed rate of 0.55% for most 30-year loans
- Cannot be removed for life of loan (if less than 10% down)
- Upfront premium of 1.75% of loan amount at closing
- Same rate regardless of credit score
Key takeaway: If you have a credit score above 700 and can put at least 5% down, a conventional loan with PMI is almost always cheaper than an FHA loan with MIP — because you can cancel PMI once you reach 80% equity. With an FHA loan, you are stuck paying MIP for the entire 30-year term unless you refinance into a conventional loan.
State-by-State Average PMI Rates
PMI rates are not set by the state — they are determined by private insurers based on your credit and LTV. However, because home prices and average credit scores vary by state, the effective monthly PMI payment differs significantly across the US. The table below shows estimated monthly PMI costs based on each state's median home price (2026 data), assuming 5% down and a 0.7% average PMI rate.
| State | Median Home Price | Loan Amount (5% Down) | Est. Monthly PMI |
|---|---|---|---|
| Alabama | $230,000 | $218,500 | $127 |
| Arizona | $395,000 | $375,250 | $219 |
| California | $785,000 | $745,750 | $435 |
| Colorado | $540,000 | $513,000 | $299 |
| Connecticut | $385,000 | $365,750 | $213 |
| Florida | $400,000 | $380,000 | $222 |
| Georgia | $340,000 | $323,000 | $188 |
| Hawaii | $835,000 | $793,250 | $463 |
| Illinois | $270,000 | $256,500 | $150 |
| Indiana | $235,000 | $223,250 | $130 |
| Massachusetts | $615,000 | $584,250 | $341 |
| Michigan | $240,000 | $228,000 | $133 |
| New Jersey | $490,000 | $465,500 | $272 |
| New York | $430,000 | $408,500 | $238 |
| North Carolina | $330,000 | $313,500 | $183 |
| Ohio | $220,000 | $209,000 | $122 |
| Oregon | $480,000 | $456,000 | $266 |
| Pennsylvania | $275,000 | $261,250 | $153 |
| Tennessee | $320,000 | $304,000 | $177 |
| Texas | $335,000 | $318,250 | $186 |
| Virginia | $410,000 | $389,500 | $227 |
| Washington | $580,000 | $551,000 | $322 |
| West Virginia | $145,000 | $137,750 | $80 |
| Wisconsin | $270,000 | $256,500 | $150 |
Note: These are estimates using a 0.7% average PMI rate. Your actual rate depends on your credit score, lender, and specific loan terms. Use our mortgage calculator for a personalized estimate.
Frequently Asked Questions About PMI
How is PMI calculated on a mortgage?
PMI is calculated as a percentage of your loan amount. The formula is: (Loan Amount × PMI Rate) ÷ 12 = Monthly PMI. Your PMI rate (typically 0.3%–1.5%) depends on your credit score, down payment percentage, and loan-to-value ratio.
How much is PMI on a $300,000 house?
With 5% down ($15,000) on a $300,000 house, your loan is $285,000. At a typical PMI rate of 0.7%, your monthly PMI payment would be approximately $166. With excellent credit (760+), it could be as low as $83/month.
Can I deduct PMI from my taxes?
As of the current tax code, PMI is generally not tax-deductible for most homeowners. This deduction has been enacted and expired multiple times. Always consult a CPA for the latest tax rules regarding mortgage insurance deductions.
Is PMI refundable when removed?
If you have a monthly PMI plan, there is no refund — you simply stop paying once it is cancelled. However, if you paid a single upfront PMI premium, you may be entitled to a partial refund based on a cancellation schedule provided by the insurer.
Does PMI apply to VA or USDA loans?
No. VA loans do not require any mortgage insurance — they charge a one-time VA funding fee instead. USDA loans charge a guarantee fee (1% upfront + 0.35% annually) rather than traditional PMI.
The Bottom Line
PMI is not inherently evil — it allows millions of Americans to buy homes years earlier than they could if 20% down were mandatory. But it is a financial drain that protects only the lender, not you. Treat PMI as a temporary cost with an expiration date: understand the formula, estimate your monthly expense, and build a concrete plan to eliminate it through extra payments, home appreciation, or refinancing. Every month without PMI is money back in your pocket.
Ready to run the numbers? Use our free mortgage calculator to see exactly how PMI affects your monthly payment — and what happens when it disappears.