Let’s talk about Private Mortgage Insurance, “PMI,” and whether it applies to you and your home loan experience.
What is PMI?
PMI is a type of insurance required on conventional loans when the loan amount is over 80% of the value of the home. This percentage is commonly known as the loan to value. For homebuyers who make a down payment of less than 20% or refinance a loan that is 80% or more of the home’s appraised value, Private Mortgage Insurance is usually an added requirement. This insurance protects the lender in the event the borrowers are unable to pay their mortgage loan. The PMI cost, or “premium,” can be added to your monthly mortgage payment, paid at closing, paid by the lender, or a combination of those options. PMI allows new homeowners to be able to get a loan without having to put as much money down and allows people to refinance into a conventional loan if the loan-to-value ratio is over 80%.
What Does PMI Cost?
The cost of PMI varies based on the loan to value ratio, your credit score, the loan product, and the type of PMI obtained. If you are able to afford a down payment of 20% or more, you will not have to worry about PMI in your monthly mortgage payment.
How Can You Cancel PMI?
You can request to cancel your Private Mortgage Insurance once your mortgage principal balance is less than 80% or below the original purchase price of the property. If current market rates are attractive and your home value has increased, you may be able to refinance into a new conventional loan without PMI.
There are many different options for PMI. Make sure to work with a knowledgeable and trusted lender so that you can compare the different PMI options.
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