PMI: A homebuyer's guide to private mortgage insurance

PMI is tacked onto the monthly mortgage payment. If a homeowner who pays $800 toward interest and principal every month has PMI of $150, the monthly mortgage bill will be $950.

How to avoid paying PMI

Pure and simple, you're required to pay PMI if you make a down payment that's on the small side when you buy a home.

To avoid PMI premiums, make a higher down payment. Most conventional mortgage companies require a down payment of at least 20% of the cost of the house in order to waive the PMI requirement. Companies reason that a person with enough assets to make a bigger investment when buying a home is less likely to default on the loan.

Note that some non-conventional loans never have PMI. For example, VA loans do not require any down payment and do not charge PMI.

Other things to know about PMI

In some cases, a buyer will get separate loans to cover the cost of the home and the cost of down payment, thus avoiding PMI. This type of borrowing scheme is called a piggyback loan, but it has its own risks and benefits.

Some loans offer options where the lender will pay the PMI, rather than the buyer.