How to Get Rid of PMI (and Avoid It) on a California Home

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. Call (800) 239-1103.

Mortgage insurance is the price of buying with less than 20% down. It protects the lender, not you — so once you have the equity, you want it gone. This guide covers how private mortgage insurance (PMI) works on conventional loans, the exact rules for removing it, how FHA mortgage insurance (MIP) differs, and the strategies California buyers use to avoid it in the first place.

What PMI Is and What It Costs

PMI is required on conventional loans when the loan-to-value (LTV) is above 80%. Its cost depends mainly on your credit score and down payment, and it can range from a fraction of a percent of the loan per year for a strong borrower putting 15% down to well over 1% for a lower score with 3%–5% down. Your Loan Estimate shows the exact monthly amount. It usually comes in one of three forms:

• Borrower-paid monthly PMI — the most common; it can be removed later.
• Single-premium PMI — paid once at closing (by you, the seller, or with a lender credit); no monthly charge.
• Lender-paid PMI (LPMI) — built into a higher interest rate. There’s no separate charge, but it can’t be cancelled; the higher rate stays until you refinance or sell.

How to Remove PMI: The Rules

For borrower-paid PMI on a home you live in, the federal Homeowners Protection Act gives you three paths, all measured against the home’s original value — the lower of your purchase price or the appraised value when you bought (or the appraised value at your last refinance):

1. Request cancellation at 80%. When your balance reaches 80% of original value — through scheduled payments or extra principal — you can ask in writing. You need a good payment history, no second liens, and possibly evidence the value hasn’t declined.
2. Automatic termination at 78%. When your balance is scheduled to reach 78% of original value, the servicer must end PMI if you’re current.
3. Final termination at the midpoint. PMI ends after the halfway point of the loan term (year 15 on a 30-year loan), if you’re current.

Removing PMI Based on Today’s Value

If your home has gone up in value, you may not have to wait for the original-value thresholds. For loans owned by Fannie Mae, servicers can remove PMI based on a new valuation if:

• The loan is at least two years old and the LTV based on current value is 75% or less (for loans seasoned 2–5 years), or 80% or less (for loans older than 5 years).
• If you’ve made improvements that increased the value, the two-year wait can be waived with an LTV of 80% or less.
• Your payment history is clean: no payment 30+ days late in the last 12 months and none 60+ days late in the last 24 months.

Freddie Mac has similar rules, and your servicer will tell you which applies and how the value will be determined (often an appraisal you pay for).

Example: You bought for $750,000 with 10% down, a $675,000 loan. Three years later your home is worth $900,000 and you owe about $650,000. That’s roughly 72% of today’s value — under the 75% threshold for a loan seasoned 2–5 years — so you can request removal based on a new valuation.

Other Ways to Get Rid of PMI Sooner

• Extra principal payments. Paying down to 80% of original value lets you request cancellation earlier. Tell your servicer to apply extra funds to principal.
• Recast. Some servicers will re-amortize your loan after a large principal payment, lowering both the balance and the payment.
• Refinance. If you have 20% equity at today’s value, a new conventional loan won’t need PMI. This makes the most sense when the new rate is similar to or lower than your current rate, because refinancing a low rate just to drop PMI can cost more than it saves.

FHA Mortgage Insurance (MIP) Works Differently

For FHA loans with case numbers assigned on or after June 3, 2013, MIP lasts for the life of the loan when the down payment was under 10%. The way out is to refinance into a conventional loan once you have enough equity — ideally 20% to avoid PMI entirely. Whether it’s worth it depends on your current rate versus today’s rates; I compare the full monthly payment both ways.

FHA’s annual premium doesn’t vary by credit score the way PMI does, so for some buyers with lower scores FHA can cost less up front, while conventional PMI can win for stronger credit profiles because it eventually goes away.

How to Avoid PMI When You Buy

• Put 20% down — simplest, though it isn’t always the best use of cash if it leaves you with thin reserves.
• Piggyback (80-10-10): an 80% first mortgage, a 10% second mortgage or HELOC, and 10% down. No PMI on the first; compare the second lien’s rate (often variable) against the cost of PMI.
• Lender-paid PMI: no monthly PMI, but a permanently higher rate. It tends to fit shorter expected holding periods.
• Single-premium PMI paid by the seller: a seller credit can pay a one-time PMI premium at closing.
• VA loans: no monthly mortgage insurance for eligible veterans and service members, even with no down payment (a one-time funding fee usually applies).
• Physician and portfolio programs: some lenders offer higher-LTV loans without PMI for certain professionals or strong borrowers. See physician loans and jumbo loans.

Sometimes the right answer is simply to pay PMI for a few years. Keeping cash in reserve has real value, and with appreciation and a clean payment history you may be able to remove it sooner than you expect.

Is PMI Tax-Deductible?

Federal legislation passed in 2025 restored the itemized deduction for mortgage insurance premiums starting with the 2026 tax year, subject to income limits. Whether it helps you depends on whether you itemize and your income; ask your tax advisor.

Frequently Asked Questions

When does PMI automatically go away?

Under the Homeowners Protection Act, borrower-paid PMI must end automatically when your balance is scheduled to reach 78% of the home’s original value, if you’re current. It also ends at the midpoint of the loan term. You can request cancellation earlier, at 80% of original value, with a good payment history and no second liens.

Can I remove PMI because my home went up in value?

Often, yes. For Fannie Mae loans, the loan generally must be at least two years old, and the loan-to-value based on current value must be 75% or less for loans seasoned two to five years, or 80% or less after five years, with a clean payment history. The servicer will require a new valuation, often an appraisal.

Does FHA mortgage insurance ever go away?

For FHA loans with case numbers assigned on or after June 3, 2013, annual MIP lasts 11 years if you put at least 10% down, and for the life of the loan if you put less than 10% down. The usual way to remove it is to refinance into a conventional loan once you have enough equity.

How can I avoid PMI with less than 20% down?

Options include an 80-10-10 piggyback loan, lender-paid PMI built into a higher rate, a seller-paid single-premium policy, a VA loan if you’re eligible, or certain physician and portfolio programs. Each has trade-offs, so compare the total monthly cost and how long you expect to keep the loan.

Can lender-paid PMI be cancelled?

No. Lender-paid PMI is built into your interest rate, so it stays until you refinance or sell. It can make sense if you expect to move or refinance within a few years.

Is PMI tax-deductible?

Federal legislation passed in 2025 restored the deduction for mortgage insurance premiums starting with the 2026 tax year, subject to income limits. It only helps if you itemize, so check with your tax advisor.

Related Resources

• How Much Down Payment Do I Need?
• Conventional Loans in California
• FHA Loans in California
• Refinancing in California
• VA Loans in California
• HELOCs in California
• Down Payment Assistance in California