Private mortgage insurance provides hope for would-be homeowners unable to come up with a 20% down payment to secure their homes. It typically remains necessary until your loan balance reaches 80% of its original value.
PMI premiums may come in the form of either an upfront premium at closing, monthly payments or both – your lender should provide you with an accurate breakdown in their Loan Estimate and Closing Disclosure document.
It’s an additional cost
Paying Private Mortgage Insurance premiums (PMI) may either be paid in one lump sum at closing or as monthly premiums added onto your mortgage payments. Your Loan Estimate and Closing Disclosure on page one contains details regarding PMI costs that you owe, specifically under “Projected Payments”.
Private mortgage insurance (PMI) provides lenders with protection in the event borrowers cannot make their mortgage payments on time. Lenders purchase this protection on behalf of borrowers and may charge different rates depending on loan size, lender practices and borrower credit score/risk factors.
Finding ways to avoid PMI may seem challenging for buyers with limited resources and who cannot save up 20% down. By making regular payments and building equity, however, you can ask your mortgage servicer to reduce or cancel PMI when your loan balance reaches 80% of original home value.
It’s not forever
As soon as your loan balance reaches 78% of its original value or halfway point in your mortgage term, or when extra principal payments have been made on time, PMI can be cancelled. Extra payments on principal may also help reduce or cancel it altogether.
As PMI protects only lenders, not borrowers directly, it doesn’t protect you if you default on your mortgage payments or lose your job.
Piggybacking allows buyers with less-than-ideal credit to avoid private mortgage insurance (PMI), though this double loan arrangement may increase costs over time and shouldn’t be done during volatile housing markets. You could potentially renounce PMI if the market value of your house goes up, provided that an appraisal fee and any other requirements are fulfilled.
It’s a good idea
PMI helps homebuyers overcome two of the greatest barriers to homeownership – affordability and inventory – when it comes time to buying their first home. Mortgage insurance costs vary based on various factors, including borrower credit score, loan-to-value ratio and down payment amount; many lenders provide an up-front premium at closing instead of monthly mortgage insurance payments that is front loaded into their mortgage loan loan balances.
However, this option is typically only viable for those unable to make a down payment of 20% or higher. When this is the case for newer homeowners who can’t afford to put down 20% or more down on their home, most often they choose a PMI premium that will then be added onto their monthly mortgage payment. Once they reach 20% equity or an 80% loan-to-value ratio ratio they may contact their lender and request cancellation of PMI premium payments as well as refinancing of loan interest when reaching this mark; piggyback loans generally carry tax benefits while refinancing can also increase debt loads so it may be wiser to consult an experienced loan officer before taking on additional debt obligations.
It’s a requirement
PMI is required on conventional loans with down payments below 20% and follows guidelines set by Fannie Mae and Freddie Mac. The annual cost ranges between 0.46 percent to 1.5 percent of loan amount and it typically becomes part of monthly mortgage payments.
Lenders require Private Mortgage Insurance (PMI) as protection against the risk that borrowers might default on their loans, but you as a borrower can request to have your PMI removed once your home’s equity reaches 20% or your mortgage balance reaches 80% of its original purchase price.