What is PMI and can I avoid it?

PMI stands for private mortgage insurance, and yes, there are ways to avoid it or get rid of it over time. PMI is an extra monthly charge that lenders add when you put down less than 20 percent on a conventional loan. It protects the lender, not you, if you were to stop paying. It is simply the cost of buying with a smaller down payment.

How much it runs varies, but PMI often falls somewhere around 0.5 to 1.5 percent of the loan amount per year, split into your monthly payment. On a typical Rhode Island mortgage that can add anywhere from around fifty to a couple hundred dollars a month. Your exact rate depends on your credit score and how much you put down, so confirm the current figure with your lender.

Here is the good news for conventional loans: PMI is not forever. As you pay down your balance and your home gains value, you can request to cancel PMI once you reach about 20 percent equity, and by law the lender must automatically drop it once you hit roughly 22 percent equity based on the original schedule. In a market like Providence or Warwick where values have generally climbed, many buyers reach that point faster than expected.

Ways to avoid PMI from the start include putting 20 percent down, which is out of reach for many first-time buyers, or using a loan type that does not carry standard PMI. VA loans for eligible veterans have no monthly mortgage insurance at all. Some lenders offer lender-paid PMI baked into a slightly higher rate, or piggyback loan structures, though those have their own trade-offs. One important distinction: FHA loans do not use PMI, they use their own mortgage insurance that often stays for the life of the loan, so that is a different situation.

The key point is that PMI is usually a temporary cost, not a reason to wait years to buy. Paying a modest monthly premium while building equity often beats paying rent. If you want to see how PMI affects your monthly payment, try the affordability calculator, and contact David if you want help weighing your down payment options.