What Is PMI and How Do You Avoid It? A Utah Homebuyer's Guide

If you’re putting less than 20% down on a conventional home purchase,
you’re going to hear about PMI. Private mortgage insurance is one of the
most misunderstood costs in homebuying — and one of the most manageable,
once you understand how it works.

Here’s what every Utah homebuyer needs to know: what PMI is, what it
costs, how to get rid of it, and how to avoid it entirely.

This guide is for educational purposes. PMI rates, program
details, and elimination timelines vary based on lender, loan type,
credit score, and other factors. Speak with a loan officer for guidance
specific to your situation.

What Is PMI?

Private mortgage insurance (PMI) is a type of insurance that protects
the lender — not you — if you default on your loan.

When you put less than 20% down on a conventional loan, the lender
has more of their money at risk. PMI compensates the lender for that
additional risk. You pay for it, even though you’re the one it protects
against.

PMI applies specifically to conventional loans.
Government-backed loans handle this differently: - FHA
loans have their own mortgage insurance premium (MIP) — a
different but related concept - VA loans have no PMI (a
major benefit of the VA loan program) - USDA loans have
a guarantee fee and annual fee instead of traditional PMI

How Much Does PMI Cost?

PMI is typically quoted as an annual percentage of the loan amount,
paid monthly. Rates generally range from 0.5% to 1.5% of the loan amount
per year, with the exact cost depending on:

• Your credit score (higher score = lower PMI rate)
• Your down payment (larger down payment = lower PMI rate, less
  risk)
• The loan-to-value ratio
• The specific insurer and loan program

Example:

On a $400,000 home in Utah with 5% down ($20,000): - Loan amount:
$380,000 - PMI at 0.8%/year: $3,040/year = ~$253/month

That $253 is added to your principal, interest, taxes, and insurance
payment — and it stays until certain conditions are met.

Is PMI worth it? For many buyers, yes. Waiting until
you have 20% down means waiting years — and potentially paying higher
home prices or rents in the meantime. PMI is a cost, but it’s a finite
cost that enables you to buy sooner and start building equity.

When Does PMI Go Away?

PMI isn’t forever. The Homeowners Protection Act (HPA) governs PMI
cancellation on conventional loans:

Automatic cancellation: When your loan-to-value
ratio (LTV) reaches 78% based on the original purchase price and
original amortization schedule, your lender must automatically cancel
PMI. This happens through regular monthly payments over time.

Borrower-requested cancellation: Once you reach 80%
LTV (based on the original purchase price and amortization schedule),
you can request PMI cancellation. You may need to demonstrate that your
home’s value hasn’t decreased and that your payment history is
current.

Appraisal-based cancellation: If your home has
appreciated, you may be able to request PMI removal based on a new
appraisal showing you’ve reached 80% LTV — even if you haven’t made
enough payments to reach it through amortization alone. This typically
requires a minimum period of time (often 2 years or more) and lender
approval.

Important: FHA mortgage insurance (MIP) has
different — and often less favorable — cancellation rules. For FHA loans
originated after June 2013 with less than 10% down, MIP typically lasts
for the life of the loan. This is one reason some buyers prefer
conventional loans with PMI (finite) over FHA MIP (potentially
permanent). A loan officer can help you compare the total cost over your
expected time in the home.

How to Avoid PMI (4
Strategies)

Strategy 1: Make a 20% Down
Payment

The simplest approach: put 20% down and PMI isn’t required on a
conventional loan. For a $400,000 Utah home, that’s $80,000 — a
significant hurdle for most first-time buyers, but worth knowing as the
baseline.

Strategy 2: Use a VA
Loan (If You Qualify)

VA loans don’t require PMI. Period. For eligible veterans,
active-duty service members, and qualifying surviving spouses, this is
one of the VA loan’s most significant advantages.

On a $400,000 loan, avoiding 0.8% PMI saves approximately $3,000/year
— $250/month — indefinitely (until you’d reach 80% LTV through equity)
compared to a conventional loan with the same down payment.

VA eligibility is based on military service. See va.gov for
current eligibility requirements.

Strategy 3: Lender-Paid PMI
(LPMI)

Some conventional loan programs allow the lender to pay the PMI in
exchange for a slightly higher interest rate. You don’t have a separate
monthly PMI payment — instead, the cost is baked into your rate.

Tradeoff: The higher rate is permanent for that loan
(it doesn’t go away when you reach 20% equity, unlike borrower-paid
PMI). LPMI makes sense when you plan to sell or refinance before PMI
would have been removed anyway.

Whether LPMI saves you money depends on your
timeline. A loan officer can model both scenarios for your
specific situation.

Strategy 4:
Piggyback Loan (80-10-10 Structure)

In a piggyback arrangement, you combine two loans to avoid PMI: - 80%
first mortgage (stays below the 80% LTV threshold that triggers PMI) -
10% second mortgage (home equity loan or HELOC) - 10% down payment

The result: you avoid PMI because your first mortgage is at 80% LTV,
and the second mortgage covers the remaining 10%.

Tradeoff: Second mortgages typically carry higher
rates than first mortgages. Whether the math works out in your favor
depends on current rates for both loans, your timeline, and how you
value the predictability of a fixed PMI cost vs. a variable second
mortgage payment.

Availability: Not all lenders offer piggyback loan
programs. Ask a loan officer if this structure is available and whether
it makes sense for your situation.

PMI vs. FHA
MIP: Which Is More Expensive Over Time?

This is a question many Utah buyers face — conventional with PMI, or
FHA with MIP?

The honest answer: it depends on your timeline and credit
profile.

For buyers who plan to stay in the home 5+ years and have decent
credit (680+), conventional with borrower-paid PMI is often less
expensive over time because PMI can be removed, while FHA MIP (for loans
originated after June 2013 with less than 10% down) typically
cannot.

For buyers with lower credit scores (620-660) where conventional
rates are higher, FHA may be competitive even with permanent MIP —
especially for shorter anticipated time horizons.

Have your loan officer model both scenarios with
actual current rates and your specific credit profile. The comparison is
worth doing before committing to a loan type.

Questions to Ask
Your Loan Officer About PMI

1. What is the PMI rate for my specific credit score and down payment
   amount?
2. How long until PMI is automatically cancelled based on my
   amortization schedule?
3. Can I request cancellation once I reach 80% LTV, and what do I need
   to provide?
4. Does your lender offer LPMI, and does the math favor it for my
   timeline?
5. Am I eligible for VA or USDA loans (which avoid PMI entirely)?
6. How does the monthly payment compare between conventional with PMI
   and FHA with MIP, given my credit profile?

Ready to
Understand Your Full Payment Picture?

PMI is one piece of your monthly housing cost — and there’s a clear
path to eliminating it. Whether you’re minimizing upfront costs with a
low down payment (and PMI) or using a VA loan to avoid it entirely, a
loan officer can show you exactly what your monthly payment looks like
and when you’ll reach the point where PMI goes away.

Talk to an Integrity First Lending Loan Officer
→