What Is Mortgage Insurance and Can I Avoid It?
- Jun 10
- 3 min read
One of the biggest misconceptions about buying a home is that you need a 20% down payment. Fortunately, that's simply not true.
Many first-time home buyers purchase a home with as little as 3% to 5% down. However, putting less than 20% down often means you'll pay mortgage insurance.
While mortgage insurance increases your monthly payment, it can also help you become a homeowner years sooner than waiting to save a larger down payment.
Let's break down what mortgage insurance is, how it works, and whether it's something you can avoid.
What Is Mortgage Insurance?
Mortgage insurance protects the lender if a borrower stops making payments on the loan.
While it benefits the lender, it benefits buyers too by making low-down-payment loans possible.
Without mortgage insurance, many buyers would need to save tens of thousands of additional dollars before purchasing a home.
What Is PMI?
PMI stands for Private Mortgage Insurance.
PMI is typically required on conventional loans when a buyer puts less than 20% down.
The cost varies based on:
Credit score
Down payment amount
Loan size
Loan type
Generally, buyers with stronger credit scores pay lower PMI premiums.
What Is FHA Mortgage Insurance?
FHA loans use Mortgage Insurance Premiums (MIP) instead of PMI.
Unlike conventional PMI, FHA mortgage insurance consists of two parts:
Upfront Mortgage Insurance Premium
This is typically financed into the loan amount rather than paid out of pocket.
Annual Mortgage Insurance Premium
This is divided into monthly payments and included with your mortgage payment.
Many first-time buyers choose FHA loans because of their flexible qualification requirements, even though mortgage insurance may remain longer than it would with a conventional loan.
How Much Does Mortgage Insurance Cost?
There is no one-size-fits-all answer.
The exact cost depends on your:
Loan amount
Credit score
Down payment
Loan program
For many buyers, mortgage insurance may add anywhere from approximately $50 to several hundred dollars per month.
A lender can provide a personalized estimate based on your specific situation.
Can I Avoid Mortgage Insurance?
Yes, in some situations.
Put 20% Down
The most common way to avoid PMI on a conventional loan is by making a 20% down payment.
For example:
$300,000 home
20% down payment = $60,000
While this eliminates PMI, many buyers decide purchasing sooner with a smaller down payment makes more financial sense.
Consider VA Financing
Eligible veterans and active-duty service members may qualify for VA loans that do not require monthly mortgage insurance.
Explore Certain Portfolio Loan Options
Some lenders offer specialty loan programs that do not require traditional mortgage insurance.
These programs vary by lender and borrower qualifications.
When Does PMI Go Away?
One advantage of conventional PMI is that it can often be removed once sufficient equity has been built in the home.
In many cases, homeowners can request PMI removal after reaching certain loan-to-value thresholds.
This means mortgage insurance is often temporary.
Is Mortgage Insurance Worth It?
For many first-time buyers, the answer is yes.
Consider two scenarios:
Option 1: Wait
Spend years saving for a 20% down payment.
Option 2: Buy Sooner
Purchase with 3% to 5% down and pay mortgage insurance temporarily.
Depending on market conditions, buying sooner may allow homeowners to build equity and benefit from home appreciation while they continue growing their savings.
Every buyer's situation is different, which is why it's important to evaluate the numbers carefully.
The Bottom Line
Mortgage insurance isn't necessarily a bad thing.
It's simply a tool that allows many buyers to purchase a home sooner without needing a large down payment.
If you're considering buying a home and wondering how mortgage insurance would affect your monthly payment, I can connect you with trusted local lenders who can provide personalized options and estimates.
The best loan isn't always the one with the biggest down payment—it's the one that helps you achieve your homeownership goals while staying comfortable with your budget.
About Stacy Cataldo
Stacy specializes exclusively in helping first-time home buyers navigate the Michigan housing market. From loan options and down payment assistance to inspections and closing day, she guides buyers through every step of the process. Schedule a free first-time buyer consultation to get started.
