Do You Need PMI with a Conventional Loan?
Usually only if your down payment is low, as your lender sets the cutoff. PMI is separate from homeowners insurance.
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What Sets the Cutoff
Your lender sets the down payment level where PMI is required, and sets the level where it drops off. That number is in your loan agreement, not your home insurance policy. It has nothing to do with the house itself.
PMI Is Not Home Insurance
Your lender will ask for both before closing, which is why they get confused. PMI protects the lender if you stop paying the mortgage. Home insurance protects the house itself and is what pays out after a fire, a storm or a burst pipe.
What the Binder Covers
Before closing, your lender wants a binder showing a home insurance policy will be active on day one. That binder lists your dwelling coverage, the amount it would cost to rebuild the house. PMI does not appear on it.
Where Costs Show Up
If your loan has an escrow account, your monthly payment may bundle PMI, home insurance premiums and property taxes together. Check your loan estimate or closing disclosure to see which of these your lender collects, and when each one ends.
Get the Binder Right the First Time
Your lender needs dwelling coverage set at the right rebuild cost before closing, not what the house would sell for. Comparing policies now helps you land on that figure without paying for coverage you don't need.
How PMI Actually Gets Removed
PMI does not disappear just because you feel like you have enough equity. Federal law sets a point, based on your loan balance against the home's original value, where your servicer has to cancel it automatically as long as you are current on payments. You can also ask for it to be removed earlier, once your balance reaches a lower threshold the law also sets. That usually means asking in writing, and sometimes paying for a new appraisal to show the home's value supports it.
Rising home values trip people up here. If your house is worth more now than when you bought it, your real equity is higher than your loan balance alone suggests. Some servicers will accept a new appraisal and let you request early removal based on current value instead of the original purchase price. Others stick to the original schedule unless you refinance. Your loan servicer makes that call, not your home insurance company, and the exact terms are in your mortgage documents.
Home insurance runs on a different number entirely. Dwelling coverage is set by rebuild cost, and that figure moves independently of your home's market value or your loan balance. A house that has gained a lot of value might still cost about the same to rebuild if labor and material prices have held steady. Worth tracking both separately. One determines when PMI falls off your monthly payment. The other determines whether a total loss actually gets your house rebuilt.
Once PMI drops off, your monthly payment should go down, assuming taxes and insurance premiums have not risen enough to cancel out the savings. That is a good time to check your dwelling coverage again. Rebuild costs tend to climb with construction prices, and a policy bought at closing years earlier may be under-insured by the time PMI ends. Looking at the mortgage statement and the insurance declarations page together catches mismatches before they turn into a problem after a claim.
What Happens to Escrow When PMI Ends
Dropping PMI changes the escrow math even though home insurance was never part of PMI itself. If your lender collects PMI, property taxes and insurance premiums in one monthly payment, removing PMI shrinks that payment without touching the other two pieces. Some homeowners expect a bigger drop than they get, because taxes and insurance premiums keep moving on their own schedule regardless of what happens with PMI.
Your escrow account gets reviewed on its own timeline, usually once a year, separate from any PMI cancellation. That review looks at what was actually paid out for taxes and insurance over the past year against what was collected, and adjusts the monthly amount going forward. If insurance premiums went up at renewal while PMI was dropping off, the payment reduction from losing PMI might be smaller than expected, or might not show up the month you thought it would.
Worth checking the escrow analysis your servicer sends each year against the insurance declarations page directly. That statement shows exactly what was paid for the policy, and whether the collected amount is keeping pace. A shortage in the account, often caused by a premium increase that wasn't anticipated, gets spread across future payments or billed as a lump sum. Catching that early, rather than finding out when the new payment amount shows up, gives more room to shop for coverage before the next renewal locks in.
None of this changes what the binder needed to show before closing. That was about dwelling coverage being set correctly on day one. This is about keeping taxes, insurance and the shrinking PMI payment straight once the loan is underway, since all three move through the same escrow account but answer to different schedules and different rules.
Before Closing
Check your loan estimate for the binder deadline, then confirm dwelling coverage matches your home's rebuild cost, not its sale price, before you sign anything.
