If you are in the process of obtaining a mortgage loan to purchase a home or you already have a mortgage, you are likely aware of the term PMI. PMI (private mortgage insurance) is required when borrowers put less than 20 percent down on a home. This insurance protects the lender if borrowers default on the loan.
Generally, PMI can be paid upfront or as part of the monthly mortgage payment. PMI is helpful for borrowers that desire to buy a home but do not have enough funds for a 20 percent down payment. It gives more individuals and families the opportunity for homeownership.
The cost of PMI depends on a few factors:
- Loan amount
- Credit score
- Initial down payment amount
To avoid or stop paying PMI, there are some options:
- Make the full 20 percent down payment. The higher the down payment, the better. If you are not quite there yet, continue saving up your money. It is better to save money and spend it on a down payment rather than on PMI.
- Talk to your lender about loan programs that do not require PMI and see if you qualify for one.
- Cancel PMI at a later date. Keep an eye on your loan balance and once it reaches 80 percent of the home’s original value, contact your lender about canceling PMI. Keep in mind that specific requirements must be met, such as being consistent with loan payments.
Although PMI adds to your monthly mortgage expenses, it may be the best option for you if you desire to reach your goal of homeownership faster. However, you can save money and avoid PMI using one of the options above.
Contact a HOMESTAR Mortgage Loan Originator to learn more about PMI and determine the best mortgage to fit your lifestyle!