What is PMI and how does it work when buying a home in Texas?
Reviewed August 2026 by Shannon Miles Group
PMI (private mortgage insurance) is a monthly premium required on most conventional mortgages when your down payment is less than 20 percent of the purchase price. It protects the lender, not you, if you stop making payments. PMI typically costs 0.3 to 1.5 percent of the loan amount annually, which adds roughly $30 to $150 per month for every $100,000 borrowed. Once you reach 20 percent equity in your home, you can request PMI cancellation from your lender. In Texas, PMI is governed by federal rules under the Homeowners Protection Act, which gives you specific rights to have it removed.
Understanding PMI in Texas.
PMI is one of the most common costs that first-time homebuyers encounter. Understanding how it works helps you budget accurately and plan your path to removing it.
What PMI actually is
Private mortgage insurance is an insurance policy that covers the lender if you default on your mortgage. It is required on conventional loans (not FHA, VA, or USDA loans) when the loan-to-value ratio exceeds 80 percent. In practical terms, that means any down payment under 20 percent triggers PMI. The policy does not protect you or your family. It protects the lending institution against losses if they have to foreclose and sell the property for less than the loan balance.
How much does PMI cost?
PMI rates depend on your credit score, down payment percentage, and loan size. A buyer with strong credit and a 10 percent down payment will pay less than a buyer with a lower credit score and 5 percent down. The annual premium is typically 0.3 to 1.5 percent of the loan balance, divided into 12 monthly payments. On a $250,000 loan with a 10 percent down payment and good credit, PMI might add $80 to $120 per month. Your lender will provide a specific estimate when you apply.
How PMI differs from other mortgage insurance
PMI is specific to conventional loans. FHA loans use MIP (mortgage insurance premium), which works differently and typically lasts the life of the loan unless you put down 10 percent or more. VA loans have a one-time funding fee instead of monthly insurance. USDA loans also have a guarantee fee. PMI is generally considered the most flexible option because you can cancel it once you reach 20 percent equity.
Cancelling PMI in Texas
Under the Homeowners Protection Act (also called the PMI Cancellation Act), you have the right to request PMI cancellation once your loan balance drops to 80 percent of the original property value. Your lender must automatically terminate PMI when your balance reaches 78 percent, provided your account is current. If your home has increased in value significantly, you may be able to request early cancellation based on a new appraisal. In Texas, rising home values in areas like Paris, Sherman, and Celina have helped many homeowners reach 20 percent equity faster than expected through appreciation alone.
Ways to avoid or reduce PMI
There are several strategies to reduce or eliminate PMI. A piggyback loan (an 80-10-10 structure) uses a second mortgage to cover part of the down payment. Lender-paid PMI (LPMI) trades a slightly higher interest rate for no monthly PMI. Or you can simply wait and save a 20 percent down payment. Each option has tradeoffs, and the right choice depends on your financial situation, how long you plan to stay in the home, and current interest rates.
PMI for Northeast Texas buyers.
Northeast Texas has a wide range of home prices, which directly affects how PMI impacts your monthly payment. In Lamar County, the median home price is lower than the Texas state average, so a 5 percent down payment on a typical home may result in a manageable PMI payment. In faster-growing communities like Celina and Frisco in Collin County, higher purchase prices mean PMI can add a more significant amount to your monthly housing cost.
Rural and acreage properties present an additional consideration. Some lenders have stricter requirements for loans on properties with land, outbuildings, or septic and well systems. PMI availability and rates can vary depending on the property type. Working with a lender who understands rural property financing in Northeast Texas is important for getting an accurate picture of your total costs.
The Shannon Miles Group works with trusted local lenders across Grayson, Collin, Fannin, Hunt, Lamar, Delta, Hopkins, and Red River Counties. We can connect you with lenders who understand local property values and financing options.
Key points about PMI.
- PMI is tax deductible. Depending on your income level, PMI premiums may be deductible as mortgage interest on your federal taxes. Ask your tax professional whether you qualify.
- PMI is not the same as homeowners insurance. Homeowners insurance protects your property and belongings. PMI protects the lender. You need both, and they appear as separate line items on your monthly statement.
- Your credit score directly affects your PMI rate. A higher score means a lower PMI payment. Improving your credit before applying for a mortgage can save you money every month.
- Home appreciation can help you cancel PMI early. If home values in your area rise, you may reach 20 percent equity faster than your loan amortization schedule would suggest. A new appraisal might confirm you can drop PMI.
- Ask your lender for a PMI disclosure. When you apply for a mortgage, your lender should provide a written estimate of your PMI payment and explain when and how you can cancel it.
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