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How to Avoid PMI: 5 Ways to Skip Mortgage Insurance
5 ways to avoid PMI: (1) put 20% down; (2) 80/10/10 piggyback loan (80% first + 10% second + 10% down); (3) lender-paid PMI — higher rate that cannot be cancelled; bad for long-term buyers; (4) VA loan (eligible veterans, no PMI, 1.25-3.3% funding fee instead); (5) USDA loan (0.35% annual guarantee fee, no PMI). Own Luxury Homes® 12-Point Agent Integrity Audit™.
How to Avoid PMI: 5 Ways to Skip Mortgage Insurance
There are five legitimate ways to avoid PMI entirely. Each comes with trade-offs that need honest evaluation before deciding avoidance is better than paying PMI and cancelling it later.
Option 1: Put 20% Down
The most straightforward path: make a 20% down payment and PMI is never required. The limitation: on a $400,000 home, 20% down is $80,000 — a significant savings requirement that takes many buyers years to accumulate. The honest calculation: if saving to 20% takes you 3 years of additional renting, you have paid 3 years of rent (building no equity) to avoid PMI. On a home that appreciates 4.4%/year, you have also foregone ~$52,000 in appreciation. Against PMI that might cost $250/month for 8 years ($24,000), the math often favors buying with PMI and cancelling it rather than waiting for 20%.
Option 2: The 80/10/10 Piggyback Loan
A piggyback loan structure uses two mortgages simultaneously to avoid PMI: • First mortgage: 80% of purchase price (stays below the 80% LTV PMI threshold) • Second mortgage: 10% of purchase price (a HELOC or fixed second mortgage) • Down payment: 10% Because the first mortgage is at or below 80% LTV, no PMI is required. The second mortgage typically carries a higher interest rate (1–2% above the first) and may have a variable rate. When piggyback makes sense: when the total cost of the higher-rate second mortgage is less than the cost of PMI over the period until you'd cancel it. When it does not: when you plan to stay long-term and the second mortgage's higher rate adds more total cost than PMI would have.
Option 3: Lender-Paid PMI (LPMI)
Lender-paid PMI (LPMI) means the lender pays your PMI premium upfront in exchange for you accepting a higher interest rate for the life of the loan. No monthly PMI line item appears on your statement. The critical problem: LPMI cannot be cancelled. Because the lender is compensating for the PMI cost through the higher interest rate, and the interest rate is fixed for the life of the loan, you pay the effective PMI cost forever — even after you would have cancelled conventional PMI at 80% LTV. LPMI is only advantageous if: you are certain you will sell or refinance within 3–5 years before you would have hit the PMI cancellation threshold, or the tax deductibility of mortgage interest provides meaningful benefit in your specific tax situation. For most long-term buyers, LPMI is a bad deal.
Options 4 & 5: VA and USDA Loans
VA loans: available to eligible veterans, active-duty service members, and surviving spouses. No PMI. A VA funding fee (1.25–3.3% of loan amount, one-time) is charged instead but can be financed into the loan. For veterans who qualify, VA loans are consistently the best available mortgage for owner-occupied purchases. USDA loans: available for eligible rural and some suburban properties. No PMI. Instead, a guarantee fee (1% upfront + 0.35% annually) applies. The 0.35% annual fee is significantly lower than most PMI rates. Income limits and geographic restrictions apply.
“The clients I see make the worst PMI avoidance decisions are the ones who choose LPMI because they do not understand it cannot be cancelled. They hear "no monthly PMI" and think it is free. It is not free — it is baked into a permanently higher rate. If they plan to stay in the home 10+ years, conventional PMI that cancels at 80% LTV is almost always the better deal. The PMI avoidance question should always be: compared to conventional PMI that I will eventually cancel, which path costs less in total?”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
Can you buy a house without PMI?
Yes — five ways: put 20% down, use an 80/10/10 piggyback loan structure, accept lender-paid PMI (higher rate, no monthly PMI, but permanent), use a VA loan (eligible veterans, no PMI, funding fee instead), or use a USDA loan (eligible rural areas, lower guarantee fee). Each has trade-offs. LPMI appears to avoid PMI but actually embeds the cost in a permanently higher interest rate that cannot be cancelled. For most long-term buyers, conventional PMI that cancels at 80% LTV costs less in total than LPMI.
What is an 80/10/10 loan?
An 80/10/10 loan (also called a piggyback loan) uses two mortgages simultaneously to avoid PMI: an 80% first mortgage (at or below the 80% LTV PMI threshold), a 10% second mortgage (often a HELOC or fixed second), and a 10% down payment. Because the first mortgage is at exactly 80% LTV, no PMI is required. The second mortgage typically carries a higher interest rate. Whether the total cost of the second mortgage is less than PMI depends on the specific rates and how long you plan to stay.
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— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)