If you’re a first-time homebuyer, you may be in for a nasty surprise when you open up your first mortgage statement and find the “PMI” line item. PMI, which stands for private mortgage insurance, can add hundreds of dollars per month to the cost of a mortgage. Many physicians face a unique choice—whether to pay PMI on a conventional loan or take out a physician mortgage with little or no down payment and no PMI.
Today, let’s look at what PMI is, when it applies, and how doctors can avoid it. We’ll also look at some of the scenarios where paying PMI might actually make sense. That way, if you’re buying a home, you can make an informed decision.
What Is PMI?
Private mortgage insurance (or PMI) is typically required on conventional loans where the buyer puts less than 20% down toward the purchase price of the house. PMI is there to protect the lender, since there is a higher default risk on loans where the buyer has less home equity. If you’re putting less than 20% down, you’ll want to be aware of the costs of PMI, since it can have a direct bearing on how much house you can afford.
The amount of PMI you owe each year is typically calculated by multiplying your total loan amount by your annual PMI rate (often between 0.25%-2.25%). There are a few different ways that PMI is charged and paid. PMI is sometimes paid upfront, and sometimes it’s paid by the lender as part of the loan. But it is most commonly paid in monthly installments with your regular mortgage payment. In that case, divide the annual PMI amount by 12: that’s the amount of PMI that you pay each month.
More information here:How Much Does PMI Cost?
Your exact PMI rate will depend on things like your credit score, the amount of your down payment, the type of loan, and whether you are occupying the home. Here’s one example of how PMI might look:
- $500,000 mortgage balance
- 1% PMI rate
- PMI paid monthly
To calculate the annual PMI amount, multiply the mortgage balance of $500,000 by 1% to get $5,000. Since PMI is paid monthly in this case, divide $5,000 by 12 to get $416.67. That amount is paid monthly with your regular monthly mortgage payment. It’s also important to note that although the two items share a similar name, PMI (private mortgage insurance) is NOT the same as your homeowners insurance premium. Your monthly mortgage payment may include principal, interest, property tax, homeowner’s insurance, and PMI.
One possible silver lining is that PMI premiums are, once again, tax-deductible, starting with the 2026 tax year. Mortgage insurance premiums were previously tax-deductible from 2007 to 2021, but they have not been tax-deductible since then. Consult with a tax professional to see how that might affect your individual return.
How Doctors Often Avoid PMI
When considering whether to buy or rent a home, it’s important to be aware of a physician mortgage. A physician or “doctor” mortgage is a special loan program that some lenders have to attract high-income clients. They allow healthcare professionals, such as doctors and dentists, to secure a mortgage with fewer restrictions than a conventional mortgage. With a doctor mortgage, you’ll typically have:
- A lower down payment requirement
- No PMI
- Special treatment of student loans
Because of the lower down payment requirements and no PMI, interest rates on physician loans are often a bit higher (0.125%-0.25% usually) than those on conventional loans. Still, that can make sense in the right situation.
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How to Get Rid of PMI
If you have a conventional loan and are paying PMI, here are some of the most common ways to get rid of PMI:
- Automatic cancellation: The Federal Housing Administration mandates that your lender drop your PMI when your principal balance reaches 78% of your home’s original purchase value (the lesser of the original sales price or appraised value).
- Request early cancellation: You can formally request that your lender cancel your PMI as soon as your loan balance hits 80% of the original value.
- Refinancing: You may be able to refinance your loan to get rid of PMI. This often works if you are putting down more money, your home’s value has appreciated, or if you are switching to a different type of loan.
The Bottom Line
While paying PMI is not ideal, it’s also not uncommon. Don’t feel like you are doing something wrong if you are paying PMI. Many wealthy physicians have paid PMI at some point, so if you do too, it’s not the end of the world. Instead, it’s better to focus on your total financial picture rather than obsessing over avoiding PMI.
Ways to avoid paying PMI include a physician mortgage, putting more money down on your home, buying a less expensive house, or just waiting (and saving up) to buy a house. If you stick to the WCI philosophy of prioritizing long-term investing, maintaining liquidity and flexibility, and not rushing into buying a house, you’re likely to find yourself with a solid financial future, regardless of whether you have to pay PMI.
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