Do Conventional Loans Require PMI? A Complete Guide

Do conventional loans require PMI? The short answer is yes - if your down payment is less than 20% of the home’s purchase price. Private mortgage insurance (PMI) protects the lender in case you default on your mortgage loan. For most homebuyers, this is a critical factor in planning their home purchase and monthly budget. Understanding when PMI applies, how much it costs, and how to remove it can save you thousands of dollars over the life of your loan.

When Does a Conventional Loan Require PMI?

Private mortgage insurance is mandatory on conventional loans whenever the loan-to-value (LTV) ratio exceeds 80%. In simple terms, if you put down less than 20%, your conventional mortgage will include PMI. This applies to both purchase transactions and refinances, unless you’re using a specialized program like a VA loan or a piggyback loan structure.

Unlike FHA loans, which require mortgage insurance premiums (MIP) for the life of the loan, PMI on conventional loans is not permanent. Once you build sufficient equity - typically 20% - you can request cancellation. This flexibility makes conventional loans an attractive option for buyers who plan to grow their equity quickly through appreciation or extra principal payments.

It's also important to distinguish between PMI on conventional loans and mortgage insurance on government-backed loans. While both protect the lender, the rules for cancellation and the cost structures differ significantly. For a deeper comparison, see our guide on different types of mortgage insurance.

How Much Does PMI Cost on a Conventional Mortgage?

The cost of PMI generally ranges from 0.3% to 1.5% of the original loan amount per year. Your exact PMI premium depends on your credit score, the LTV ratio, and the type of conventional loan program. For example, on a $350,000 home loan with a 0.75% PMI rate, you’d pay roughly $219 per month, which is added to your monthly mortgage payment.

Most lenders include PMI in your monthly mortgage bill, often through an escrow account. Over the course of a few years, these payments can add up to thousands of dollars. To better understand your total costs, use our conventional loan monthly payment calculator to see exactly how PMI impacts your budget.

Your credit score plays a major role in determining your PMI rate. Borrowers with scores above 740 often secure the lowest PMI premiums, while those with scores closer to the 620 minimum may pay significantly more. Improving your credit score before applying can reduce your PMI costs substantially. For a full breakdown of credit requirements, see our conventional loan credit score requirements.

Conventional Loan PMI Requirements: Credit, DTI, and LTV

To qualify for a conventional loan, lenders evaluate your credit score, debt-to-income (DTI) ratio, and down payment. The minimum credit score for most conventional loans is 620, but borrowers with scores above 740 often secure the lowest PMI rates and the best interest rate offers.

Your DTI ratio typically must stay at or below 43%, though some programs allow up to 50% with compensating factors. A lower DTI can help you qualify for a better PMI rate. Check your DTI using our debt-to-income calculator to see where you stand.

The loan-to-value (LTV) ratio is the single most important factor in determining whether PMI is required. LTV is calculated by dividing your loan amount by the home's appraised value or purchase price, whichever is lower. An LTV above 80% triggers the PMI requirement. For a step-by-step guide, see our LTV calculator.

• Conventional loans require PMI when the down payment is under 20% (LTV & 80%).
• PMI costs vary based on credit score, LTV, and loan program.
• Higher credit scores = lower PMI premiums and better overall loan terms.
• PMI is temporary and can be removed once you reach 20% equity.

Can You Avoid PMI on a Conventional Loan?

Yes. The most straightforward way to avoid private mortgage insurance is to make a 20% down payment. This brings your LTV to 80%, eliminating the need for PMI. Other strategies include using a piggyback loan (such as an 80-10-10 structure), which combines a first mortgage with a second loan to cover the down payment without PMI.

Another option is lender-paid PMI, where the lender charges a higher interest rate instead of a separate monthly PMI fee. While this keeps your monthly payment lower, it increases your overall borrowing cost if you hold the loan for many years. This strategy can make sense if you plan to sell or refinance within a few years.

For buyers who can't reach 20% down, low-down-payment programs like Conventional 97 allow you to buy a home with just 3% down - but PMI is required until you reach 20% equity. Programs like HomeReady and Home Possible also offer reduced PMI rates for eligible borrowers.

How Does PMI Work on Conventional Loans?

PMI protects the lender - not you - if you default. If you stop making payments and the home sells for less than the outstanding loan balance, the PMI insurer covers the lender’s loss. Coverage typically ranges from 20% to 35% of the original loan amount, depending on the risk profile.

During underwriting, your mortgage lender automatically adds PMI if your equity is below 20%. Borrowers typically cannot choose their own insurer; lenders partner with specific PMI companies. For more details on coverage types, see our guide on different types of mortgage insurance.

It's also worth noting that PMI premiums are generally not tax-deductible, though there have been temporary exceptions in certain tax years. Consult a tax professional for the most current rules. For a broader overview of how PMI fits into your overall mortgage payment, see our guide on how PMI affects your mortgage payments.

How to Cancel PMI on Your Conventional Mortgage

You can request to cancel PMI once your loan balance falls to 80% of your home’s original value. This usually happens after 5–7 years of regular payments, depending on your amortization schedule. Your lender may require a new appraisal to confirm the home’s current value, especially if property values have risen.

Federal law requires automatic PMI termination when your LTV reaches 78% based on the original amortization schedule. At that point, you don’t need to take any action - the lender must remove PMI. You can track your equity using our LTV calculator to plan your cancellation request.

For a detailed timeline of when PMI goes away, see our guide on when does private mortgage insurance go away. If you want to know exactly how much PMI you're paying, see our article on how much is private mortgage insurance on a conventional loan.

PMI Alternatives: VA and USDA Loans

Government-backed programs offer PMI-free options. VA loans never require PMI, and USDA loans also avoid PMI with 100% financing in eligible rural areas. However, these programs have strict eligibility rules based on military service or property location.

For conventional buyers who can’t reach 20% down, low-down-payment programs like Conventional 97 allow you to buy a home with just 3% down - but PMI is required until you reach 20% equity. Programs like HomeReady and Home Possible also offer reduced PMI rates for eligible borrowers.

If you're comparing loan programs, our mortgage program comparison calculator can help you see the total cost of each option, including PMI. For a direct comparison, see our guide on VA loan vs conventional loan.

Make an Informed Decision About PMI

PMI increases your total borrowing cost, so it’s important to factor it into your comparison of mortgage options. Even a small difference in the PMI rate can cost thousands of dollars over the life of the loan. Work with a knowledgeable loan officer to explore all available paths, including lender-paid PMI, piggyback loans, and government programs.

Stay informed about market trends and loan requirements by visiting our articles page. To see how different loan types stack up against each other, use our mortgage program comparison calculator.

Before you start shopping for a home, it's also wise to get prequalified so you know exactly what you can afford. Our guide on conventional loan prequalification walks you through the process.

Do conventional loans require PMI?

Yes, conventional loans require PMI when your down payment is less than 20% of the home's purchase price. The requirement applies to most conforming loans and is based on the loan-to-value (LTV) ratio. Once your equity reaches 20%, you can request to cancel PMI, and it is automatically terminated at 78% LTV.

How much does PMI cost on a conventional loan?

PMI typically costs between 0.3% and 1.5% of the original loan amount per year. Your exact rate depends on your credit score, down payment, and loan program. On a $350,000 loan, that could mean paying roughly $100 to $440 per month for PMI.

Can I avoid PMI with a conventional loan?

Yes. The most common way to avoid PMI is to make a 20% down payment. Other options include using a piggyback loan structure (such as an 80-10-10), choosing lender-paid PMI, or qualifying for a reduced-PMI program like HomeReady or Home Possible.

When can I cancel PMI on a conventional loan?

You can request PMI cancellation once your loan balance reaches 80% of the home's original value. Federal law requires automatic termination at 78% LTV based on the original amortization schedule. You may need to provide a new appraisal to confirm your home's value.

Continuing Your Mortgage Education

For more information about conventional lending requirements and options, explore our complete library of mortgage articles. These resources offer detailed explanations of complex topics to help you make confident financing decisions. You can also explore our questions and answers section for common borrower inquiries.