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What Is PMI
People often think that the only way to obtain a conventional loan is to save up a 20% downpayment.
Scraping together that 20% down payment to buy your dream home can seem like an insurmountable challenge! For those of you who don’t quite have the full 20% saved up there is a solution – PMI.
What is PMI?
PMI =private mortgage insurance
It is an insurance policy that protects the lender if you stop making payments on your home loan. It is usually a monthly fee that is added to your mortgage payment.
Typically if your down payment on your home purchase is less than 20%, lenders will require you to have PMI. Paying PMI is often a necessary cost if you want to purchase a home without a significant downpayment and it allows you to go ahead and enjoy the benefits of home ownership.
You can request cancellation of your PMI when your loan balance reaches 80%. You will need to call your lender and request the removal of the PMI. The lender is required to cancel PMI on conventional loans when that percentage drops to 78%.
Special Note: FHA Loans require payment of PMI (or Mortgage Insurance Premium in the FHA world so they call it MIP) for the life of the loan.
Below is anexample of how PMI can affect your monthly mortgage payment:
This is just an estimate of what your payment might be on a $200,000 home. The amount does not include your homeowner’sinsurance or property taxes (which will also be added to your monthly payment).
If you have questions about whether you should buy now and pay the PMI or wait until you have saved up 20% give The Bunch Team a call and we will help you figure out what works best for your particular situation. We also know several highly qualified and experienced lenders that can help you with any financing questions you might have.
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