PMI stands for Private Mortgage Insurance. It's a monthly fee added to your mortgage payment when you put less than 20% down on a conventional loan. It protects the lender — not you — if you stop making payments. On a $600,000 loan, PMI can run anywhere from $150 to $400 a month, depending on your credit score and loan-to-value ratio.

Here's the good news: it's not permanent, and there are ways to avoid it.

Why does PMI exist?

When you put less than 20% down, lenders see you as a higher-risk borrower. You have less skin in the game, so they require insurance to cover their exposure if the loan goes sideways. That insurance premium gets passed on to you as an extra monthly cost.

It's one of the most common things that surprises buyers when they see their full monthly payment estimate for the first time.

How much does PMI actually cost?

PMI typically runs between 0.5% and 1.5% of your loan amount per year, broken into monthly payments. So on a $600,000 loan:

Your actual rate depends on your credit score, down payment percentage, and loan type. Someone with a 760 score putting 15% down will pay a lot less than someone with a 640 putting 5% down.

When does PMI go away?

On a conventional loan, PMI cancels automatically once your loan balance reaches 78% of the original purchase price — meaning you've built 22% equity. You can also request cancellation at 80% equity (20% paid down) and a lender is required to review your request.

If your home has appreciated significantly, you may also be able to request an early cancellation based on the new appraised value. I've helped clients get rid of PMI years early just because their home value went up.

FHA loans work differently — if you put less than 10% down, mortgage insurance stays for the life of the loan. The only way out is to refinance into a conventional loan once you've built enough equity.

How do you avoid PMI in the first place?

Put 20% down. The most straightforward option. On a $700,000 home in Temecula, that's $140,000. For a lot of buyers, that's not realistic — which is where the other options come in.

Use a piggyback loan (80/10/10). Some lenders offer a structure where you take an 80% first mortgage, a 10% second mortgage, and put 10% down. No PMI on the first loan because you're at 80% LTV. The second loan has its own rate, but in some scenarios the total payment is still lower than carrying PMI.

Use a VA loan. If you're a veteran or active duty, VA loans require no down payment and no PMI at all. This is one of the biggest financial advantages of VA eligibility.

Look into lender-paid PMI. Some lenders offer to cover the PMI in exchange for a slightly higher interest rate. Whether that's a good trade depends on how long you plan to stay in the home — but it's worth running the numbers.

Is PMI always a deal breaker?

Actually, no. I've had clients who ran the math and realized that paying PMI for a few years while they buy now — rather than waiting years to save a full 20% down — was the smarter financial move. Meanwhile their home appreciated and they built equity, got rid of PMI, and came out ahead.

So PMI isn't automatically bad. It's just a cost you should understand and have a plan for.