When you are buying a home in Washington State, PMI usually comes up when you are using a conventional loan and putting down less than 20 percent. Washington buyers may be able to reduce, avoid, or offset that cost by making a larger down payment, using a piggyback second mortgage, choosing a lender-paid or upfront mortgage-insurance structure, or paying monthly PMI for a period of time and removing it later if the loan allows it.
The best path is not always the one that eliminates PMI on day one. In some cases, draining your cash reserves, borrowing from other accounts, or taking a higher-rate structure to avoid PMI can cost more overall or leave you with less flexibility after closing. The right choice depends on your down payment, reserves, expected time in the home, and which type of loan you are using.
Typically, the lender will ask you to purchase PMI if your loan-to-value ratio is higher than a certain level. This ratio is a measure of the loan amount you require from your lender relative to the value of the home you plan to purchase. The higher the loan amount is relative to the property value, the more of a risk the lender will carry by issuing you a mortgage. That’s why lenders insist on PMI to help cover them in case you default.
In most cases, the lender will ask you to buy PMI if you put down less than 20 percent of the home’s purchase price. If you can come up with a 20% down payment, you can avoid paying PMI and therefore save yourself some money in the long run.
If you don’t have 20% in liquid assets, there are other ways to come up with the down payment.
– Do you have an investment account? If you have money invested in stocks, mutual funds, index funds, etc., you can likely get a margin loan equal to a portion of those assets (usually around 50%). This is a quick and easy way to access capital without being required to sell assets, which can have significant tax implications. Your financial advisor can work with you on a plan to utilize a short-term margin loan with a plan to pay it back by selling your assets at the appropriate time.
– Borrowing from retirement – Another way to avoid PMI is to borrow from your 401k. This can often be a cheap way to come up with funds quickly; however, it is not a good long-term solution, and you should have a plan to pay back the loan as quickly as possible.
Another option to avoid PMI is to invest in something called a piggyback mortgage. In this case, you are splitting your Washington mortgage in two. For example, if you put down 10 percent, you would get a first mortgage for 80% of the purchase price and a second mortgage or Home Equity Line of Credit for the remaining 10%.
While this can help you avoid having to take out PMI, the drawback of this policy is that there will be a negative impact to the terms of the first mortgage when secondary financing is present. Additionally the second loan might have a higher interest rate than the first or have a variable rate feature, adding risk if rates move higher.
One way to avoid negatively impacting the terms of the first mortgage is to put 20% down with one of the methods mentioned above and then open up a second mortgage or Home Equity Line of Credit after the purchase closes to pay back your margin or 401k loan.
Another option is to build the mortgage-insurance cost into the structure of the loan instead of paying standard monthly borrower-paid PMI. In this case, you might pay a slightly higher interest rate with lender-paid PMI or pay higher upfront costs to buy out the monthly PMI premium. When you choose the higher-rate option, you may still end up with a lower payment than with monthly PMI, but the tradeoff is that the cost is embedded differently.
This distinction matters. With borrower-paid conventional PMI, the monthly premium may be removable later if your loan qualifies and you reach the required point for cancellation under the applicable rules. By contrast, lender-paid PMI is typically built into the interest rate, so there usually is not a separate monthly PMI charge to cancel later. If you want to eliminate that added cost in the future, you may need to refinance instead. If you pay mortgage insurance upfront, the timing and ability to recover that cost can also differ from standard monthly borrower-paid PMI.
That is why it is important to compare more than the starting payment. You should also weigh how long you plan on keeping the loan, whether you may qualify to remove monthly PMI later, and whether a higher-rate structure still makes sense if rates or your plans change.
An experienced Loan Officer can help assist you in determining the right option based on your specific situation as well as the ever changing premiums for monthly and lender paid PMI.
| Strategy | Best fit | Main tradeoff | Payment impact | Flexibility later | Who should be cautious |
|---|---|---|---|---|---|
| Put 20% down | Buyers who have strong cash reserves even after closing | Uses more cash upfront | No monthly PMI | High flexibility because there is no PMI structure to unwind | Buyers who would leave themselves short on reserves |
| Piggyback financing | Buyers who want to avoid monthly PMI without bringing the full 20% in cash | Second financing can carry a higher rate or variable-rate risk and may affect first-mortgage terms | May avoid PMI, but adds a second payment | Moderate flexibility if you can pay down or refinance the second loan later | Buyers stretching to qualify or uncomfortable with second-lien risk |
| Lender-paid PMI | Buyers who want a lower monthly payment than standard monthly PMI may provide | Cost is usually built into the interest rate | Often lower than monthly PMI, but not free | Usually less flexible later because removing the cost may require a refinance | Buyers unsure how long they will keep the loan |
| Pay monthly PMI temporarily | Buyers who want to preserve cash or buy sooner rather than wait for 20% down | Higher monthly payment while PMI is in place | Monthly payment includes PMI until removal is available | Can be flexible on many conventional borrower-paid PMI loans because cancellation may be possible later | Buyers assuming all loan types or PMI structures remove the same way |
Once you’ve accumulated enough equity in your home – either through making regular mortgage payments, through an increase in your home’s value, or both – you may be able to have your monthly PMI payments canceled. This applies to many conventional loans with borrower-paid PMI, not every mortgage-insurance structure. If you opt for lender-paid PMI, this is generally not applicable in the same way because the cost is usually built into the rate rather than billed as a separate monthly PMI charge.
Consumer guidance on PMI removal explains that you have the right to remove PMI for many mortgages once you have paid down your mortgage to a specified point, and the Homeowners Protection Act establishes uniform procedures for cancellation and termination for borrower-paid PMI products. It is important to know when a lender is required to remove PMI, which you can find here PMI Removal.
While a lender can opt to remove PMI earlier, you should not base your decision on which program to take regardless of what the lender tells you their policy is, as they can change their requirements at any time. The most reliable approach is to understand whether you have standard borrower-paid conventional PMI that may be canceled later, or a lender-paid or other structure that may require you to refinance if you want to fully change the cost.
These are 4 ways that you can approach PMI in Washington. In some cases, the smartest move is to avoid it from the start. In others, it may make more sense to keep more cash on hand, accept PMI temporarily, and remove it later if your loan allows it. As always, speak with your trusted mortgage professional for personal advice on your specific situation.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
It may be possible to avoid monthly PMI without putting 20% down by using a piggyback second mortgage, choosing a lender-paid mortgage insurance structure, or paying upfront mortgage insurance instead of standard monthly borrower-paid PMI. Each option shifts the cost differently, so the best choice depends on your cash reserves, loan terms, and how long you expect to keep the home.
Yes, sometimes. One common approach is an 80-10-10 structure, where the first mortgage covers 80% of the purchase price, you put 10% down, and a second mortgage or HELOC covers the other 10%. This can avoid monthly PMI, but the second loan may have a higher rate, a variable rate, or less favorable overall terms.
For many conventional loans, putting 20% down is the standard way to avoid monthly PMI. If you put down less than 20%, mortgage insurance often applies unless you use a different financing structure such as a piggyback loan or lender-paid mortgage insurance.
Not always. Putting 20% down can eliminate PMI from the start, but using more cash upfront can leave you with fewer reserves after closing. In some situations, preserving cash and paying PMI for a period of time may be the more flexible choice, especially if the loan allows PMI removal later.
A piggyback mortgage can be useful if you want to avoid monthly PMI without bringing a full 20% down payment in cash. The tradeoff is that second financing can affect the first mortgage terms and may come with a higher or variable interest rate, so it works best for buyers who are comfortable managing that added risk.
It can be, but it depends on the loan structure and your plans. Lender-paid mortgage insurance may produce a lower monthly payment than standard monthly PMI, but the cost is usually built into the interest rate. That means there typically is not a separate PMI charge to cancel later, and removing that cost may require a refinance.
On many conventional loans with borrower-paid PMI, removal may be possible later once you reach the required point for cancellation under the applicable rules. The timing depends on the loan type and PMI structure, so it is important to know whether you have standard monthly borrower-paid PMI or a different arrangement such as lender-paid mortgage insurance.
For many conventional loans with borrower-paid PMI, reaching the required equity position is a key point for cancellation or termination under the applicable rules. However, not every mortgage insurance structure works the same way. If the cost is built into the interest rate through lender-paid mortgage insurance, there usually is no separate monthly PMI charge to remove.
In some cases, yes. If you build enough equity through a combination of regular mortgage payments and home value appreciation, monthly borrower-paid PMI on many conventional loans may be eligible for cancellation. That does not apply the same way to lender-paid mortgage insurance, because that cost is generally embedded in the rate.
No. PMI removal does not work the same way across all loan types or all mortgage insurance structures. Many conventional loans with borrower-paid PMI may allow cancellation later, while lender-paid mortgage insurance is usually built into the rate and often requires a refinance if you want to fully change that cost.
Our loan officers are ready and waiting to help you apply for your home loan.
Learn more about the people behind Sammamish Mortgage
Whether you’re buying a home or ready to refinance, our professionals can help.
Mortgage Support — 24/7
No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.
Adjust the parameters based on what you want to track
