Home buyers who have less than 20% for a down payment have more mortgage options than ever before, but it’s important to know the pros and cons.
One downside of a smaller down payment is that you’ll probably have to pay for mortgage insurance. The requirements vary depending on the type of home loan. With a conventional mortgage — one that isn’t guaranteed or insured by the federal government — the lender typically requires private mortgage insurance, or PMI, if you put less than 20% down. The cost of PMI, sometimes called a premium, is added to your monthly mortgage payment. Many borrowers don’t mind paying PMI if it means they can buy a house sooner, but it can affect affordability by increasing the amount you have to spend each month.
Our calculator will help you estimate how much you’ll pay for PMI.
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How we got here
What’s behind the numbers?
NerdWallet’s PMI Calculator uses your home price, down payment, mortgage interest rate, mortgage insurance rate and loan term, among other things.
Using this calculator can help you to determine how much home you can afford. If the added cost of PMI pushes you over your monthly budget, you may want to shop in a lower price range or postpone home buying plans until your credit score, down payment amount and debt-to-income ratio, or DTI, improve.
Estimating your PMI costs now can also help you choose the best loan type for your financial situation.
What our PMI calculator does
Our PMI calculator starts by asking for the price of the home you want to buy, then subtracts your anticipated down payment amount to arrive at a down payment percentage. If this percentage is under 20%, it’s likely that you’ll have to pay for private mortgage insurance.
With this and other loan details, we’re able to estimate your monthly PMI cost. The calculator also provides an estimate of the total amount you’ll pay for PMI until you have 20% equity, at which time you may be able to get rid of it. (See more about how to cancel PMI below.)
How to use our PMI calculator
- Enter the amount you plan to spend on a home. For the most accurate results, enter the amount for which you’re already pre-qualified or preapproved, but you can also enter your best guess of how much you can afford.
- Enter a down payment amount. This may be an amount you’ve already saved, or an amount that seems affordable.
- Enter an interest rate. If you don’t yet have a personalized interest rate quote from a lender, click the link underneath the entry field to see today’s average mortgage rate and use it as an estimate.
- Enter a mortgage insurance rate. If you’re currently shopping lenders, ask for their typical PMI rate. If you’re not sure what your mortgage insurance rate will be, choose a rate somewhere in the middle of the typical range — 0.41% to 2.25%.
- Enter a loan term. While thirty-year loans are common, especially among first-time home buyers, if you’re already considering a shorter-term loan, you may want to choose 15-year. Don’t worry — you can easily toggle between loan terms to see how it affects results.
Once everything is entered, you should see the following results:
- Your monthly PMI cost.
- The total PMI amount you’ll pay until you reach 20% equity.
- An estimate of your full mortgage payment, including PMI.
- The total cost of your loan over its full term.
You can also get a detailed version of results broken down by monthly and total costs. Just check the box of the option you’d like to see.
Private mortgage insurance 101
Why do I have to pay PMI?
With many insurance policies, you’re charged a premium in exchange for financial coverage if something goes wrong. But mortgage insurance is different. PMI protects your lender if you stop making your monthly mortgage payments. A smaller down payment means lenders take on more risk because they’re getting less money upfront. Mortgage insurance ensures a lender recovers at least some of their investment, allowing borrowers with less than a 20% down payment to become homeowners.
Can I lower my PMI costs?
Mortgage insurance rates vary by lender. Your credit score, DTI and loan-to-value ratio, or LTV, can also have an effect. Borrowers with low credit scores, high DTIs and smaller down payments will typically pay higher mortgage insurance rates. Improving your credit score, paying down debt and putting down as much as you can afford may reduce your PMI costs.
Can I avoid paying PMI?
If you want to avoid PMI altogether, you’ll need to make a sufficient down payment. Many lenders require PMI for anything less than 20% down, but some are willing to waive mortgage insurance at a lower down payment percentage.
Even if private mortgage insurance is required to close your home loan, you may be able to get rid of PMI later. You can drop PMI when:
- You achieve 80% LTV (or 78% LTV in some cases) either by paying down your loan or getting a higher appraised value.
- You pass the halfway point of your mortgage term.
- You refinance your mortgage, and the new loan balance is less than 80% of the home’s value.
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