One of the most frustrating issues we see in today’s housing market is confusion around private mortgage insurance (PMI). Online forums and social media often amplify outdated or flat-out incorrect information, leaving buyers unsure of what actually applies to their loan.
The reality? Many buyers put less than 20% down, and PMI plays a role in making homeownership possible sooner—not later. Let’s clear up the confusion by breaking down the three biggest PMI myths we still hear today.
What Is Private Mortgage Insurance (PMI)?
Private mortgage insurance is designed to protect the lender, not the buyer, in case the borrower defaults on the loan. PMI is typically required on conventional loans when the down payment is less than 20%.
There are exceptions depending on loan type and structure, which we’ll cover below.
PMI costs usually range from 0.5% to 1% of the loan amount annually, depending on credit score, down payment, and loan terms. For example, with a low down payment, PMI could add a few hundred dollars per month—but it can often be removed later.
Myth #1: “Government-Backed Loans Don’t Require Mortgage Insurance”
Partially true—but often misunderstood.
- VA loans do not require PMI. However, most borrowers pay a VA funding fee, which helps offset risk to taxpayers.
- FHA loans absolutely require mortgage insurance, though it’s called MIP (Mortgage Insurance Premium).
FHA MIP includes:
- An upfront premium (typically 1.75% of the base loan amount)
- An annual premium, paid monthly, based on loan amount, term, and loan-to-value ratio
Unlike PMI on conventional loans, FHA mortgage insurance rules are far more restrictive—something many buyers don’t realize until later.
Myth #2: “PMI Automatically Cancels at 20% Equity”
Only partially true—and timing matters.
If you have a conventional loan, you can request PMI cancellation once you reach 20% equity, based on the home’s original value or a new appraisal.
However, under the Homeowners Protection Act of 1998, lenders are required to automatically cancel PMI only after you reach 22% equity, assuming you’re current on payments.
Important distinction:
- Conventional loan: PMI can usually be removed
- FHA loan: MIP generally cannot be canceled unless you refinance or sell
This difference alone can significantly impact long-term monthly costs.
Myth #3: “PMI Is Always Tax Deductible”
This one changes often—and causes the most confusion.
The ability to deduct PMI on federal tax returns is not permanent. Congress has historically allowed the deduction on a temporary basis, sometimes renewing it late in the year and sometimes not at all.
As of recent tax years, PMI deductibility:
- Is income-restricted
- May expire or change depending on legislation
- Should never be assumed without professional advice
Because tax laws change frequently, this myth is especially risky. Always confirm current eligibility with a qualified tax professional.
The Bottom Line on PMI
PMI isn’t inherently “bad”—it’s a tool. For many buyers, it’s what allows them to purchase a home sooner instead of waiting years to save a 20% down payment.
The key is understanding:
- Which loan type you’re using
- How PMI or MIP works
- When (or if) it can be removed
We are not mortgage or tax professionals, so if you have questions about how PMI applies to your specific situation, speak directly with your lender or financial advisor.
Ready to buy or sell real estate in Houston or the surrounding suburbs? Reach out to Jennifer Yoingco, REALTOR®, and her team, The Houston Suburb Group. They’ll help you get ready to EXPERIENCE LIVING IN HOUSTON TEXAS!
FAQs
1. Is PMI required on all mortgages?
No. PMI is typically required on conventional loans with less than 20% down. VA loans do not require PMI, and FHA loans use a different form of mortgage insurance called MIP.
2. Can PMI be removed?
Yes, on most conventional loans once sufficient equity is reached. FHA mortgage insurance usually cannot be removed without refinancing.
3. How much does PMI cost per month?
PMI generally ranges from 0.5% to 1% of the loan amount annually, depending on credit score, down payment, and loan structure.
4. Is PMI tax deductible?
Sometimes—but not always. PMI deductibility depends on current tax law and income limits and can change year to year.
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