What Is Mortgage Insurance and How Can You Avoid It

Private mortgage insurance or PMI is required on conventional loans when your down payment is less than 20 percent of the purchase price. On FHA loans a mortgage insurance premium is required regardless of your down payment. PMI on a conventional loan typically costs between 0.5 and 1.5 percent of the loan amount annually. The good news is that conventional PMI can be removed once your equity reaches 20 percent either through payments or appreciation. FHA mortgage insurance premiums are more difficult to remove and often require refinancing into a conventional loan. If you can put 10 percent down on a conventional loan you may pay PMI for only a few years before reaching the 20 percent threshold.