Photo: Shixart1985, CC BY 2.0
If you’re buying a home in Huntley, Algonquin or anywhere in the Northwest Suburbs with less than 20% down, you’ll probably hear the term PMI. It can add to your monthly payment, but it’s also what makes buying with a smaller down payment possible for many people. Here’s how it works.
This article is for general information only and is not financial advice. Talk with a licensed mortgage lender about your own situation.
What Is Private Mortgage Insurance?
Private mortgage insurance (PMI) is a type of insurance that protects the lender, not you, if a borrower stops making payments on a conventional loan. According to the Consumer Financial Protection Bureau (CFPB), you’ll usually be required to pay for PMI on a conventional loan when your down payment is less than 20% of the home’s purchase price.
PMI is often paid as part of your monthly mortgage payment, though some lenders offer other arrangements, such as an up-front payment.
PMI vs. FHA Mortgage Insurance
PMI applies to conventional loans. FHA loans have their own mortgage insurance premium (MIP) with different rules, and the steps below for removing PMI don’t apply to FHA MIP in the same way. Ask your lender which type you’d have.
How to Avoid PMI
- Put 20% down. On a conventional loan, 20% down generally means no PMI.
- Ask about lender-paid options. Some lenders cover the insurance in exchange for a higher interest rate. Compare the long-term cost.
- Look into other loan programs. Some programs, such as VA loans for eligible borrowers, don’t require PMI. Your lender can tell you what you qualify for.
Putting less down isn’t automatically a bad choice. Waiting years to save 20% can have its own costs. A lender pre-approval will show you what each option looks like.
How to Remove PMI: The 80% and 78% Rules
The federal Homeowners Protection Act gives you rights to remove PMI on most conventional loans for a single-family primary residence closed on or after July 29, 1999. According to the CFPB:
- 80% – You can ask. You can request that your lender cancel PMI once your principal balance is scheduled to reach 80% of the home’s original value, or sooner if you’ve made extra payments. You’ll generally need to make the request in writing, have a good payment history, be current on payments, and your lender may require proof the value hasn’t dropped and that there are no other liens.
- 78% – It ends automatically. Your lender must automatically end PMI when your balance is scheduled to reach 78% of the original value, as long as you’re current on payments.
- Final termination. If neither has happened, PMI must end the month after you reach the midpoint of your loan’s amortization schedule (for example, 15 years into a 30-year loan), if you’re current.
“Original value” usually means the lower of the purchase price or the appraised value when you bought. Some lenders may consider a new appraisal if your home has gained value, but that depends on the lender and investor guidelines, so ask your servicer.
Tips to Get Rid of PMI Sooner
- Check your loan’s amortization schedule for your 80% date.
- Make extra principal payments if your budget allows.
- Call your servicer and ask exactly what they require to cancel.
People also ask
Is PMI required on every mortgage?
No. PMI is usually required on conventional loans with less than 20% down. FHA loans have their own mortgage insurance, and some programs, such as VA loans, don’t require PMI.
When does PMI go away?
Under the Homeowners Protection Act, you can request cancellation when your balance is scheduled to reach 80% of the original value, and it ends automatically at 78% if you’re current on payments.
Can I remove PMI if my home value goes up?
Possibly. Some lenders allow it with a new appraisal, but it’s up to your lender and loan guidelines. Ask your servicer what they require. You can also get a free home value estimate to see where you stand.
Ready to Talk About Buying?
I’m Dana Gallagher, a Broker with Berkshire Hathaway HomeServices Starck Real Estate, and I’ve been helping buyers in Huntley and the Northwest Suburbs for years. If you’re working out your down payment or want help finding a lender, call or text me at 224-858-0022 or contact me here. New to the process? Start with my Illinois home buying guide or Buying a Home in Huntley in 2026.
Not financial advice. Consult a licensed mortgage professional about your specific loan.