Understanding Private Mortgage Insurance (PMI)

Private Mortgage Insurance

How is PMI Calculated

If your down payment is under 20%, you'll need to budget for private mortgage insurance (PMI).

2 %

or less down requires PMI

at 0 %

Loan-To-Value PMI can be removed

0 %

Average Annual PMI Rates Based on Credit Score of 710*

Estimating Your PMI Costs

If you’re planning to buy a home with a smaller down payment, it’s essential to estimate how much PMI might add to your monthly mortgage payment. By understanding the factors that influence PMI, you can get a clearer picture of the overall cost of homeownership.

PMI, or Private Mortgage Insurance, is calculated based on several key factors, including the size of your loan, your down payment amount, your credit score, and your debt-to-income ratio.

Tips for Estimating PMI

Here's a breakdown of how each factor contributes to the PMI calculation

Loan Amount

The larger your loan, the higher your PMI will generally be because PMI is calculated as a percentage of your loan amount.

Down Payment

The more money you put down upfront, the lower your PMI costs. This is because a higher down payment reduces the lender's risk.

Credit Score

Your credit score is a significant factor in determining your PMI rate. Borrowers with higher credit scores typically pay lower PMI rates, while those with lower credit scores pay more.

Debt-to-Income Ratio

This ratio compares your monthly debt payments to your gross monthly income. A lower DTI can help reduce your PMI rate, as it indicates to lenders that you are less of a risk.

Mortgage insurance

How Much Can PMI Cost?

The cost of PMI for a conventional mortgage typically falls between 0.46% and 1.50% of the original loan amount annually, according to the Urban Institute's Housing Finance Policy Center.

The specific percentage depends largely on your credit score—borrowers with lower credit scores generally pay more for PMI than those with higher scores. Knowing this range can help you estimate how much PMI might add to your monthly payment and, in turn, how much house you can afford.

For instance, on a $300,000 mortgage, PMI could cost between $1,380 and $4,500 per year, translating to approximately $115 to $375 per month.

Average Annual PMI Rates Based on Credit Score:*

620-639: 1.50%
640-659: 1.31%
660-679: 1.23%
680-699: 0.98%
700-719: 0.79%
720-739: 0.70%
740-759: 0.58%
760 and above: 0.46%

* Source: The Urban Institute's Housing Finance Policy Center