Can You Put 20% Down and Still Have PMI?

Saving enough for a 20% down payment is a major milestone for homebuyers. On a conventional mortgage, reaching this threshold generally allows you to avoid private mortgage insurance (PMI), which can otherwise increase your monthly housing payment.

However, putting 20% down does not automatically eliminate every type of mortgage insurance in every situation. Your loan-to-value ratio, the property’s appraised value, whether you are purchasing or refinancing, and the mortgage program you choose can all affect the outcome.

If you are planning to put 20% down, understanding these details can help you compare loan offers, avoid unexpected costs, and decide how much cash you should bring to closing.

Usually, no, not on a standard conventional purchase mortgage when your down payment genuinely brings the loan-to-value ratio to 80% or less. Conventional PMI is generally required when the loan-to-value ratio exceeds 80%, subject to the lender’s and loan program’s requirements.

For example, suppose you buy a home for $300,000 and put down $60,000. Your mortgage would be $240,000, giving you an 80% loan-to-value ratio if the lender uses $300,000 as the property’s value for the calculation.

In this situation, PMI is generally not required for a standard conventional purchase mortgage.

However, if your loan-to-value ratio is higher than expected, you refinance with less than 20% equity, or you choose a mortgage program with different insurance rules, you may still encounter mortgage insurance costs.

One reason a buyer might expect to avoid PMI but still face a mortgage insurance requirement is a low appraisal.

For many conventional purchase mortgages, the loan-to-value ratio is calculated using the lower of the home’s purchase price or appraised value. If the appraisal comes in below the purchase price, your down payment may represent less than 20% of the value used for the calculation.

Consider this example:

• Purchase price: $300,000
• Down payment: $60,000
• Mortgage amount: $240,000
• Appraised value: $280,000

Although your down payment equals 20% of the purchase price, the mortgage represents approximately 85.7% of the appraised value.

That difference could mean you do not qualify for the expected 80% loan-to-value threshold. Your lender may require additional cash at closing, mortgage insurance, or another solution permitted under the loan program.

Ask your lender how the appraisal affects your loan-to-value ratio before assuming that 20% of the purchase price will eliminate PMI.

The rules can be different when you refinance an existing mortgage.

When you purchase a home, the lender generally considers the applicable purchase price and appraisal when calculating the loan-to-value ratio. During a refinance, the calculation typically uses an acceptable current property valuation.

Imagine you purchased a home for $300,000 with a $60,000 down payment. Your original mortgage was $240,000, representing 80% of the purchase price.

Several years later, you want to refinance, but the property has declined in value. If the home is now valued at $280,000 and your outstanding mortgage balance is $230,000, your loan-to-value ratio would be approximately 82.1%.

You initially put down 20%, but you now have less than 20% equity based on the new valuation and outstanding balance.

Depending on the refinance program, lender requirements, and loan terms, mortgage insurance may be required. The Consumer Financial Protection Bureau explains that PMI can apply to a conventional refinance when your equity is below 20%.

Before refinancing, ask for a breakdown of the proposed loan-to-value ratio, mortgage insurance requirements, interest rate, and closing costs.

It is important to distinguish private mortgage insurance from other forms of mortgage insurance.

Conventional mortgages may require PMI when the loan-to-value ratio is above the applicable threshold. Government-backed loans can have different requirements, even when you make a substantial down payment.

For example, FHA loans generally require an upfront mortgage insurance premium and annual mortgage insurance premiums under applicable program rules. The duration of FHA mortgage insurance depends on factors such as the original loan-to-value ratio and loan term.

Consequently, putting 20% down on an FHA loan does not automatically eliminate FHA mortgage insurance. FHA insurance is not the same as conventional PMI.

VA loans generally do not require monthly mortgage insurance, although eligible borrowers may face a VA funding fee unless an exemption applies. USDA loans have their own guarantee-fee structure.

If your goal is to avoid conventional PMI, compare eligible conventional options with government-backed mortgages rather than assuming every program follows the same rules.

Some conventional lenders offer a structure known as lender-paid mortgage insurance (LPMI). Instead of charging you a separate monthly PMI premium, the lender pays the insurance cost, which may be reflected in a higher interest rate or other loan pricing.

This arrangement is typically an alternative for certain loans that would otherwise require mortgage insurance. It is not the same as a standard borrower-paid PMI charge.

If you are putting 20% down and your lender mentions lender-paid mortgage insurance, ask why it applies to your specific loan. It may be part of a particular loan offer or pricing structure rather than a requirement caused by the down payment itself.

Compare the interest rate, monthly payment, fees, and total borrowing cost against an option without the insurance arrangement. The CFPB recommends asking lenders about available PMI choices and comparing complete loan offers.

Before closing, ask your lender to confirm the loan-to-value ratio and whether mortgage insurance will be included in your loan.

Use these steps to check:

1. Confirm the value used for the calculation. For a purchase, ask whether the lender uses the lower of the purchase price or appraised value.
2. Calculate your loan amount. Subtract your down payment from the purchase price, accounting for any permitted loan structure or financed costs.
3. Verify the loan-to-value ratio. Ask whether the final ratio is 80% or less and whether any other loan requirements affect mortgage insurance.
4. Review your Loan Estimate. Check the projected monthly payment and the loan-cost sections for any mortgage insurance charges.
5. Ask about alternative loan options. If the lender proposes PMI or another insurance arrangement, compare it with other eligible mortgage offers.

You can estimate the upfront amount with our Down Payment Calculator and compare your expected monthly payment using the Mortgage Calculator With Taxes and Insurance.

For a broader explanation of the benefits of a larger down payment, read how down payment size affects your mortgage rate.

Putting 20% down generally allows you to avoid borrower-paid PMI on a standard conventional purchase mortgage. However, a lower-than-expected appraisal, refinancing with less than 20% equity, or choosing a government-backed mortgage can change the mortgage insurance rules that apply.

Before closing, verify your loan-to-value ratio, review your Loan Estimate, and ask your lender to explain any insurance charges. Confirming these details can help you avoid unexpected costs and choose the mortgage that best fits your financial situation.