PMI stands for private mortgage insurance, and it is the fee lenders charge when you put down less than 20% on a conventional loan. It protects the lender if you stop making payments, not you. And it can add $75 to $375 or more to your monthly payment depending on your loan size and credit score.
I had a buyer in West Boca who was approved for a $350,000 conventional loan with 5% down. Her monthly PMI was $215. Over the first 5 years, she would have paid nearly $13,000 in PMI alone. That is money that goes straight to the insurance company, not toward her home equity. We switched her to an FHA loan with down payment assistance, and her total monthly payment ended up lower even with FHA's mortgage insurance.
Here is what every Florida buyer needs to know about PMI and how to minimize or eliminate it.
How Much Does PMI Actually Cost?
PMI typically costs between 0.3% and 1.5% of your loan amount per year. Here is what that looks like in real numbers:
- $250,000 loan: PMI of $63 to $313 per month
- $300,000 loan: PMI of $75 to $375 per month
- $400,000 loan: PMI of $100 to $500 per month
The exact rate depends on your credit score and your down payment. A higher credit score means lower PMI. A larger down payment also reduces PMI because the lender sees you as less risky.
The frustrating part is that PMI does not build equity. It is a pure expense. So anything you can do to avoid or minimize it puts money back in your pocket.
Use our affordability calculator to see how PMI affects your monthly payment.
Strategy 1: Use Down Payment Assistance to Reach 20%
Florida's assistance programs like Hometown Heroes (up to $35,000) and FL Assist ($10,000) can help you reach a 20% down payment, or close to it, eliminating PMI entirely. I see this strategy work all the time for buyers earning $50,000 to $80,000 a year.
A recent buyer of mine in Boynton Beach was putting 5% down on a $280,000 condo ($14,000). Her PMI would have been $195 per month. We applied for Hometown Heroes and she received $35,000 in assistance. She put 20% down ($56,000) using a combination of her savings and the grant, had money left over for closing costs, and walked away with no PMI. Her monthly payment dropped by $195 compared to what it would have been with PMI.
Check your eligibility for Florida down payment assistance programs.
Strategy 2: Choose VA or USDA for Zero PMI
This is the simplest strategy for those who qualify. VA loans have no monthly mortgage insurance at all. USDA loans have a low 0.35% annual fee that is much cheaper than PMI.
If you are a veteran or active-duty military, a VA loan with zero down and no PMI is hands-down your best option. If you are buying in a USDA-eligible area (parts of Boynton Beach, Lake Worth, and Palm Beach County west of I-95 qualify), the USDA loan's annual fee of 0.35% is a fraction of what you would pay in PMI.
See VA-friendly neighborhoods in South Florida. Learn about USDA loans and eligible areas.
Strategy 3: Use an 80-10-10 Piggyback Loan
An 80-10-10 loan (also called a piggyback loan) lets you put 10% down, borrow 80% with a first mortgage, and borrow 10% with a second mortgage. The total loan-to-value is 90%, but because the first mortgage is at 80%, there is no PMI.
The trade-off is that the second mortgage usually has a higher interest rate. You need to run the numbers to see if the interest on the second mortgage is less than what you would pay in PMI. In many cases, especially if you plan to pay off the second loan quickly, the piggyback strategy saves money.
This strategy works best for buyers with strong credit (740+) who can qualify for the second mortgage. Your lender can run both scenarios and show you which one costs less over 5 years.
Strategy 4: Lender-Paid PMI
Lender-paid PMI (LPMI) is where the lender pays the PMI premium in exchange for a slightly higher interest rate on your loan. You have no monthly PMI, but your rate is typically 0.25% to 0.5% higher.
This can make sense if you plan to stay in the home for a shorter period (under 5 years) and you prefer a lower monthly payment. The downside: you cannot cancel LPMI when you reach 20% equity, because the cost was baked into your rate from the start.
Compare LPMI with conventional PMI to see which saves more over the time you plan to own the home. A good lender will show you both options side by side.
Read our guide on how to choose a lender who will show you all your options.
What About FHA Mortgage Insurance?
FHA loans have their own mortgage insurance called MIP (mortgage insurance premium). It works differently from conventional PMI:
- Upfront MIP: 1.75% of the loan amount, which can be rolled into the loan
- Annual MIP: 0.55% to 0.85% of the loan amount, paid monthly
- Duration: For loans with less than 10% down, MIP lasts the life of the loan. For 10% down or more, it drops off after 11 years
FHA MIP is often cheaper upfront than conventional PMI, but it lasts longer. If you are putting down less than 10%, conventional PMI might be cheaper in the long run because you can cancel it when you reach 20% equity. If you are putting down 10% or more, FHA MIP drops off after 11 years, which can make it a solid option.
Compare FHA vs conventional loans for Florida buyers.
How to Cancel PMI Once You Have 20% Equity
If you end up with PMI on a conventional loan, you are not stuck with it forever. Here is how to get rid of it:
- Request cancellation: Once your loan balance reaches 80% of the original home value, you can request that the lender remove PMI. You need to be current on payments and have a good payment history
- Automatic cancellation: The lender must automatically cancel PMI when your balance reaches 78% of the original home value
- Speed it up: Make extra principal payments to reach 80% LTV faster. Or, if home values in your area have gone up, pay for a new appraisal that shows you have 20% equity based on the current market value
In South Florida, where home values have been appreciating, many buyers are canceling PMI after just 2 to 3 years by requesting a new appraisal.
The Bottom Line on PMI
PMI is not the enemy. It is a tool that lets you buy a home with a lower down payment. But it is expensive, and you should have a plan to eliminate it as quickly as possible.
For most first-time buyers in South Florida, the best strategy is to use down payment assistance, a VA loan, or a USDA loan to avoid PMI entirely. If that is not an option, go with a conventional loan with PMI that you can cancel, and make extra payments or request a reappraisal after a few years.
For comprehensive guides on all things real estate, visit RyanParkerHomeGuide.com.