Leave a Message

Thank you for your message. We will be in touch with you shortly.

Understanding Private Mortgage Insurance

pmi rismedia March 16, 2024

Understanding Private Mortgage Insurance

Mortgage lenders typically want borrowers to put down 20 percent of the purchase price toward a home. For borrowers who do not have a lot of money for a down payment, it can be difficult to qualify for a mortgage. Some lenders approve mortgages with less money down, but those borrowers are considered a higher risk than those who put down 20 percent. Lenders often require borrowers with lower down payments to obtain private mortgage insurance (PMI). This is insurance provided by a private company that is designed to protect the lender if the borrower is unable to make the monthly mortgage payments.

When Is Private Mortgage Insurance Required?
If you obtain a mortgage through a conventional loan and put down less than 20 percent, the lender will likely require you to purchase PMI. It may also be required if you refinance your mortgage and you have less than 20 percent equity.

In some circumstances, you may be able to obtain a conventional loan with a low down payment that doesn’t require PMI. In that case, you will probably have to pay a higher interest rate. That option may or may not be more expensive than purchasing PMI. Talk to your lender about your specific circumstances and how much each scenario would cost. Also talk to a tax advisor about how paying for private mortgage insurance would affect your taxes and whether you might be better off accepting a higher interest rate to avoid paying for PMI.

If you do not have enough money for a 20 percent down payment, you may be able to qualify for an alternative type of loan, such as one through the Federal Housing Administration (FHA). Talk to your lender to find out how your down payment, credit score and other factors would affect your payments and whether that would be cheaper than obtaining a loan with PMI.

How Is PMI Paid?
Depending on the lender, you may have one or more options to pay for PMI. Some lenders charge monthly premiums that are added onto the cost of the mortgage. Others require a one-time premium paid at the time of closing, and some require both an upfront fee and monthly payments. Some lenders allow borrowers to choose the option that works best for them, while others offer only one method of payment.

Carefully Weigh Your Options
If you do not have enough money for a 20 percent down payment, you may still be able to obtain a mortgage, but you could have to pay extra for private mortgage insurance. Consider various options and talk to your lender about how much a variety of scenarios would cost you, both monthly and over several years, to decide which type of loan and down payment amount are best for you.


 

 

Recent Blog Posts

Stay up to date on the latest real estate trends.

pool

Pros and Cons of Installing an In-Ground Pool

A backyard, in-ground pool can make any day feel like a vacation. It’s the perfect spot to squeeze in some morning laps, cool down mid-week after work and lounge pools… Read more

Selling

How to Showcase Your Property When Selling During the Summer

No matter where you live, the summer selling market is hot. Sellers are trying to take advantage of an increased number of buyers, higher asking prices driven by the d… Read more

Vacation Home

Important Vacation Home Criteria to Consider

If you’re ready to invest in a vacation home, there are likely many locations to consider. Finding an area to focus on can be difficult if you don’t have a set locatio… Read more

Inspiration

How to Create a Light, Airy, and Summer-Inspired Space

Summer is both a season and a feeling. It’s a time that feels easier, more relaxed and all-around lightened up. Bringing that summer-inspired feeling into your home ca… Read more

Parties

The Simple Guide to Hosting Memorable Outdoor Parties This Season

The arrival of spring and summer months can usher in some of the most memorable time spent with friends and family. There is something magical about taking your celebr… Read more

Protect Home

4 Steps to Protecting Your Property During the Hot Months

All homeowners want to keep their property protected, but protecting your home requires a lot more than just home security, as many homeowners assume. Property protect… Read more

Budget

Best Budget-Friendly Ideas to Upgrade Your Outdoor Space

Creating the perfect outdoor space is something you, your family, and your guests will enjoy for years to come. Unfortunately for homeowners on a budget, backyard upgr… Read more

Making Home Safe

How to Make the Kitchen Safe for Your Toddler

Toddlers are active, curious and often unaware of the dangers around them. The kitchen is one area where you need to be particularly careful to keep your child safe. H… Read more

Convert

Should You Convert Part of Your House to an Apartment for Your Adult Child?

Moving back home can make life easier for a young adult who is not yet established professionally and financially. Turning part of your house into an apartment can let… Read more

Work With Us