PMI Or Private Mortgage Insurance

Useful Tips to Turn the Tables On PMI

Private Mortgage Insurance Required with Less Than 20% Down – Or Is It?

Considering buying a home? Do you have the cash for a 20% down payment?

PMI Private Mortgage InsuranceIf you don’t, you will need to factor PMI – Private Mortgage Insurance – into the cost of a mortgage. But here are tips on PMI and mortgage loan choices.

There is no reason you cannot buy a home with less than 20% down. A lot of people do it.

But when you do, lenders of conventional loans will add PMI to the loan payments. And PMI is also required if you refinance your mortgage with less than 20 percent equity.

PMI is a layer of protection for lenders, but an added expense for borrowers.

Conventional loans are the most popular type of mortgages. But they are not insured by the government. That is why lenders require the Private Mortgage Insurance. Should you default, the private mortgage insurance pays the lender.

If you default on your loan, PMI makes sure lenders get their money. So a conventional loan with PMI will cost you a bit more. But having PMI can help you qualify for a mortgage.

Especially if you don’t have a 20 percent down payment. But not everyone can get a conventional loan. Why? Their credit score isn’t high enough to qualify.

Can you get out of private mortgage insurance?

The answer is YES!

You can –

  • wait until the lender or servicer automatically cancels it
  • contact the lender or servicer once the principal balance reaches 80% of the original home value
  • refinancing

How Do You Pay For Private Mortgage Insurance?

PMI fees will be around 0.3 percent to about 1.5 percent of the original loan amount per year. This depends on the size of the down payment and the borrower’s credit score.

Mortgage insurance remains tax-deductible. But tax code changes could make it non-deductible at some time in the future.

Payment options for PMI include –

Monthly. Most PMI policies use monthly payments. The “mortgage insurance” will increase your monthly mortgage bill.

One large payment. Some lenders want all the PMI paid in full at the time of closing. If that is the case with your lender, ask to have the payment added to your loan.

Both. This case would be similar to making a down payment. Some of your PMI is paid up front and the rest paid in your monthly mortgage payment.

How do you know if you will be required to have PMI?

Getting private mortgage insurance is typical with conventional loans. But you might not need to get it. Consider all your options before incurring the cost of PMI.

Shop around. Don’t settle for the first lender that approves you for a mortgage. You might end up paying more in interest and insurance. Understand your options for getting a mortgage before “signing” up.

Bump up your down payment. Remember that 20 percent, eliminates PMI. In some cases this can be difficult. But if you have some extra cash, consider it. Consider how much you will save on your monthly payment. How long will it take to “re-coop” the extra down payment? Can you wait that long to get the cash back?

If you can, great. If not, make the PMI payments and get the home you want.

Consider other loans. While conventional loans are the most popular, they aren’t the only kind. Look at FHA, VA, or other types of home loans to make sure you’re getting the right one for your situation.

Considering A Home in Tucson, AZ?

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