Haris Ashley
When buying a home, you may encounter the unfamiliar term private mortgage insurance or PMI. This insurance protects the lender if you default on your loan, and it's usually required if your down payment is less than 20% of the home's purchase price. However, there are certain loans that don't require PMI, and it's important to understand these exceptions to make a well-informed decision when taking out a loan. This paragraph introduces the topic of which loans don't require mortgage insurance, a crucial aspect of financial planning when considering homeownership.
| Characteristics | Values |
|---|---|
| Down payment | 20% or more |
| Loan type | VA loan, physician loan, jumbo loan, FHA loan, conventional loan |
| Lender | Navy Federal Credit Union, PrimeLending |
| Alternative | Piggyback loan, Mortgage Insurance Premium (MIP) |
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What You'll Learn
FHA loans
While FHA loans do not have Private Mortgage Insurance (PMI), they do require MIP, which is a similar type of insurance. The only way to eliminate MIP costs from an FHA loan is by refinancing into a conventional loan without PMI when sufficient equity has been built up in the home. This is usually at least 20% of the home's overall value.
There are two main ways to remove FHA mortgage insurance: automatic termination and refinancing. Automatic termination of FHA MIP depends on when the loan was taken out and the original down payment amount. For loans taken out before June 3, 2013, with a down payment of at least 10%, MIP can be removed after 5 years. For loans after this date with the same down payment, MIP can be removed after 11 years. If the down payment was less than 10%, the borrower is generally required to pay MIP for the life of the loan, unless they refinance.
For those who don't meet the criteria for automatic MIP cancellation, refinancing to a conventional loan is an option to remove FHA mortgage insurance. However, this requires meeting the lender's qualification criteria, such as having a high enough credit score and a low debt-to-income ratio.
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VA loans
The VA's only credit requirement is for the borrower to be considered a satisfactory credit risk by a lender, although many lenders require a score of at least 620. To get a certificate of eligibility, you'll have to produce service-related documentation, which can vary based on whether you are active duty or a veteran. The certificate can be obtained from the VA website.
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Piggyback/second mortgages
A "piggyback" or "second" mortgage is a home equity loan or home equity line of credit (HELOC) that is taken out at the same time as the main mortgage. It allows borrowers with low down payment savings to borrow additional money to qualify for a main mortgage without paying for private mortgage insurance.
Borrowers with a down payment of less than 20% of the home's price will usually need to pay for mortgage insurance. For example, a borrower that can afford a 10% down payment would typically pay the first 10% of the home's price with their down payment and the remaining 90% with a mortgage that requires mortgage insurance. When using a "piggyback" mortgage, lenders structure the loans differently. The same borrower might pay for the home with a 10% down payment, an 80% main mortgage, and a 10% "piggyback" second mortgage.
The second piggybacking loan typically carries a higher interest rate, which is also often adjustable. The "piggyback" structure was common during the mortgage boom in the early to mid-2000s and is rare today. Under the rules during the mortgage boom, borrowers did not have to pay for mortgage insurance with an 80% main mortgage.
The 80/10/10 mortgage is the most common type of piggyback loan, but there are other types, such as an 80/5/15, and a 75/15/10. The second number always describes the second mortgage, and the third number describes the buyer's cash down payment. The second loan is often a home equity line of credit (HELOC) or home equity loan.
While a piggyback loan can help borrowers avoid paying for private mortgage insurance, it is important to consider the total cost of both the main mortgage and the piggyback mortgage before making a final decision.
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Conventional loans with 20% down payment
Private mortgage insurance (PMI) is a type of mortgage insurance that you might be required to purchase if you take out a conventional loan with a down payment of less than 20% of the purchase price. PMI is intended to protect the lender if you default on your loan. It is important to note that PMI does not protect you, and you can still lose your home through foreclosure if you fall behind on your mortgage payments.
If you are able to make a 20% down payment on a conventional loan, you can avoid paying for PMI altogether. This can be challenging for many first-time buyers, but it can help you secure a lower interest rate. Some lenders may also offer conventional loans with smaller down payments that do not require PMI, but these typically come with a higher interest rate.
If you are unable to make a 20% down payment, there are other ways to avoid paying PMI. One option is to take out a piggyback loan, which combines two loans: one for 80% of the home's price and the other for 10%, with a 10% down payment from the borrower. Another option is to explore loans from different lenders, such as VA loans, which are guaranteed by the Department of Veterans Affairs and do not require PMI. FHA loans, on the other hand, do not have PMI but instead come with a Mortgage Insurance Premium (MIP), which is required regardless of the down payment size.
It is always a good idea to compare the interest rates and terms offered by different lenders before deciding on a loan. Additionally, if you already have PMI, you may be able to request early cancellation once your loan-to-value (LTV) ratio reaches 80% or less.
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Jumbo loans
A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The Federal Housing Finance Agency (FHFA) determines the maximum amount for a conforming loan, which in 2025 is $806,500 in most counties. Homes that exceed the local conforming loan limit require a jumbo loan. Jumbo loans are nonconforming mortgages that exceed the conventional loan limits set by the FHFA. The interest rates on jumbo loans are usually higher than those on regular, conforming mortgages.
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Frequently asked questions
Mortgage insurance lowers the risk to the lender of offering a loan to the borrower. It is typically required if the borrower's down payment is less than 20% of the home's purchase price.
Federal Housing Administration (FHA) loans do not require PMI. Instead, they come with a Mortgage Insurance Premium (MIP). Jumbo loans, which exceed Fannie Mae and Freddie Mac loan limits, also don't always require PMI. Some lenders, like Navy Federal Credit Union, may offer mortgages that don't require PMI. VA loans also do not require PMI.
One way to avoid PMI is to make a 20% down payment on the home. Alternatively, you can look into taking out a piggyback loan, also known as an 80-10-10 loan, which involves taking out a second loan that covers half of the total down payment. This allows you to put down 10% while avoiding PMI.
