What is Private Mortgage Insurance (PMI) and what does that mean to me?
Private Mortgage Insurance or PMI is not homeowner’s insurance for the buyer. It is insurance required by lenders to protect their loan investment. If you stop paying your mortgage and the bank forecloses, they will collect the PMI. It is meant to protect the lender on loans where the buyer does not give a down payment of at least 20%. The thought is the bank will recoup 20% of the loan from the PMI and then sell your home for at least 80% or more to recapture their investment.
What does that mean to me as a buyer? The biggest takeaway is that it exists and does increase your mortgage as it is included in your payment. It can be from $75 to $200 of your mortgage payment. If you used a mortgage calculator online, that amount was probably not included. But it will increase your payment by $100 or more very easily.
How do I get out of PMI? There are a couple of ways. The first way is to put at least 20% down on your home purchase. That is not always possible for everyone. There is one loan that does not charge PMI which is the second way. If you are a Veteran, the VA loan does not include PMI. A great savings since the VA loan is 100% financed. FHA loans are usually 3.5% down and include PMI for the life of the loan. USDA is 100% financing and includes PMI for the life of the loan. Conventional loans usually start at 5% down and include PMI. As soon as you reach 20% or 22% equity and get a new appraisal to prove it, banks will remove the PMI after 2 years on conventional loans.
Of course, there are nuisances with each loan product that you must consider. I hope this information has been helpful. If you are getting ready to purchase a home in 2024, I invite you to contact me to get started. One of my first steps is to get you in touch with a strong lender that can help you understand your choices.
David Shippey - Xcellence Realty
863-521-4517
Unforgettable Service | Undeniable Results
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