What is the Necessary Down Payment Needed to Avoid Mortgage Insurance?

by Ben Bontekoe

Overview

Private Mortgage Insurance, or PMI, protects lenders if you can't make your mortgage payments and default on your loan. You will generally be required to pay PMI if your down payment is less than 20 percent of the purchase price.
Significance

PMI allows you to purchase a home even if you don't have a large down payment. This may allow you to afford a home sooner.

Cost

The cost of PMI depends upon the size of both the loan and down payment but is generally less than one-half of 1 percent of the loan amount.
Benefits

Making a down payment of less than 20 percent and paying PMI may allow you to purchase a home you may not otherwise be able to afford.
Considerations

When the principal amount due on your mortgage reaches a point that is less than 80 percent of the home's value, you can ask the lender to cancel PMI payments.
Warning

If you make a down payment that is too low, you run the risk of not being able to make payments, losing your home and jeopardizing your credit.