Private mortgage insurance — PMI — is the monthly charge that appears on the mortgage statements of Texas buyers who put down less than 20 percent. It protects the lender, not you, which is exactly why so many buyers resent it: you pay for insurance on someone else’s risk. On a typical Texas home, PMI runs $100 to $300 a month, adding thousands per year to the cost of homeownership — one of several first-year costs new buyers underestimate (see what every new homeowner should know in the first month). The good news is that PMI is avoidable, removable, and sometimes deductible. Here is how it works and every legitimate way to avoid paying it.
What PMI Is and Why Lenders Require It
PMI is insurance that reimburses the mortgage lender if the borrower defaults. Conventional lenders require it whenever the loan-to-value ratio (LTV) exceeds 80 percent — in other words, whenever the down payment is under 20 percent. The logic is simple: less borrower equity means more lender risk, and the insurance premium compensates for it.
PMI is distinct from the mortgage insurance on government-backed loans. FHA loans carry MIP (mortgage insurance premium), which includes an upfront fee plus monthly payments that often cannot be removed without refinancing. VA loans have a funding fee instead of monthly insurance. USDA loans have their own guarantee fee. This article focuses on conventional-loan PMI, which is the only type the borrower can cancel outright — a meaningful advantage worth understanding before you choose a loan program.
PMI costs vary with your credit score, down payment size, and loan amount. A borrower with a 760 credit score putting 10 percent down might pay around 0.3 percent of the loan annually; a 680-score borrower with 5 percent down could pay 0.8 percent or more. On a $320,000 Texas home with 10 percent down, that is roughly $70 to $190 per month — real money that builds zero equity.
Strategy 1: Put 20 Percent Down
The simplest avoidance is the obvious one: a 20 percent down payment means no PMI, period. On a $350,000 Texas home that is $70,000 — a steep climb, especially with Texas property taxes and closing costs on top. Whether it is worth delaying your purchase to save the full 20 percent depends on the math: compare the PMI you would pay over the years until you hit 20 percent equity against the home price appreciation and rent you would pay while waiting. In fast-appreciating Texas markets, waiting two years to save another $25,000 can cost more in price increases than the PMI you were trying to avoid. Buyers weighing the broader budget picture should also read how to create a family budget that actually works to see how a down payment goal fits alongside everything else.
Strategy 2: Piggyback Loans (80-10-10)
A piggyback structure splits the financing: an 80 percent first mortgage, a 10 percent second mortgage (home equity loan or HELOC), and a 10 percent down payment. Because the first mortgage sits at exactly 80 percent LTV, no PMI is required. The trade-off is the second loan’s interest rate, which runs higher than first-mortgage rates, and the fact that you now have two monthly payments. Piggybacks made sense when second-mortgage rates were close to first-mortgage rates; in higher-rate environments, run the numbers carefully — sometimes plain PMI is cheaper than the second loan’s interest. A mortgage broker can model both scenarios side by side.
Strategy 3: Lender-Paid Mortgage Insurance (LPMI)
With LPMI, the lender pays the PMI premium in exchange for charging you a slightly higher interest rate. Your monthly payment has no separate PMI line item, which simplifies budgeting. The catch: that higher rate lasts for the life of the loan, while borrower-paid PMI can be cancelled once you reach 20 percent equity. LPMI favors buyers who expect to sell or refinance within a few years; borrower-paid PMI favors buyers who will build equity and stay put. Ask the lender to quote both so you can compare total costs over your realistic holding period.
Strategy 4: Buy Below Market and Cancel Early
If you buy a home for less than its appraised value — a below-market deal from a motivated seller, for instance — your equity position starts stronger than your down payment suggests. Some lenders will consider the appraised value (rather than the lower purchase price) when calculating LTV. More broadly, any path to 20 percent equity triggers cancellation rights: extra principal payments, a new appraisal after market appreciation, or a combination. Texas markets that appreciated sharply in recent years have let many buyers cancel PMI years ahead of schedule via reappraisal.
How to Get Rid of PMI You Already Pay
PMI is not permanent. Federal law — the Homeowners Protection Act — gives conventional borrowers two cancellation paths:
- Borrower-requested cancellation. Once your balance reaches 80 percent of the original value (through payments, appreciation documented by a new appraisal, or both), you can request cancellation in writing. You must be current on payments and may need to pay for the appraisal. The CFPB’s PMI cancellation guide walks through the exact requirements.
- Automatic termination. The servicer must drop PMI when the balance is scheduled to reach 78 percent of the original value, provided you are current. No request needed — but “scheduled” means based on the original amortization, so extra payments do not accelerate automatic termination; only a written request does.
One caution: some loans have minimum seasoning requirements (often two years) before cancellation based on appreciation, and lenders can require the property value to be supported by a broker price opinion or appraisal you pay for. Read your PMI disclosure — lenders must provide one at closing — and calendar your eligibility date. Shorter loan terms build equity faster, which is worth weighing when you choose your mortgage at origination.
Conclusion
PMI is a surcharge on small down payments, not a life sentence. The cleanest avoidance is 20 percent down, but piggyback loans, lender-paid insurance, and buying below appraised value all work in the right circumstances. And if you are already paying it, the Homeowners Protection Act guarantees your exit: request cancellation at 80 percent LTV, and it drops automatically at 78 percent. The buyers who overpay for PMI are the ones who never calendar the cancellation date. Do the math on your own timeline, pick the strategy that fits, and treat PMI as a temporary bridge — because that is all it has to be.
Frequently Asked Questions
How much is PMI per month in Texas?
Typically 0.3 to 1.0 percent of the loan amount annually, divided into monthly payments. On a $300,000 loan that is roughly $75 to $250 per month, depending on credit score and down payment size.
Can I avoid PMI with 10 percent down?
Yes, through a piggyback 80-10-10 loan or lender-paid mortgage insurance. Both avoid a separate PMI payment but carry their own costs — compare total interest before choosing.
Does PMI go away automatically?
Yes. Under federal law, servicers must automatically terminate PMI when the loan balance is scheduled to reach 78 percent of the original property value, as long as you are current on payments.
Is PMI tax deductible?
PMI deductibility has expired and been extended by Congress multiple times. Check current IRS rules for the tax year in question — and the IRS website for the latest guidance — before counting on the deduction.
