What Is Private Mortgage Insurance? How it Works and How to Avoid Paying PMI
What Is Private Mortgage Insurance? How it Works and How to Avoid Paying PMI
Abstract
Private mortgage insurance, or PMI, allows borrowers to purchase a home without making a 20% down payment on a conventional mortgage. Let's take a look at private mortgage insurance, how much it impacts the cost of your mortgage, and how to avoid paying PMI. What Is PMI and Why Do You Pay PMI? PMI is a type of mortgage insurance that borrowers are typically required to pay on a conventional mortgage if they make a down payment of less than 20% of the home's purchase price. Mortgages insured through the Federal Housing Administration require a mortgage insurance premium, which includes an upfront charge and an annual charge regardless of the down payment amount. If you put down 10% on the mortgage, then the LTV is 90%. The higher the LTV, the greater the risk for the mortgage lender. Here's how to get rid of private mortgage insurance: Removing Private Mortgage Insurance Removing private mortgage insurance on a conventional loan requires an LTV ratio of 80%. This means that if you took out a mortgage for $300,000, then you must have $60,000 equity in your home. Consider a Home Loan With Total Mortgage Private mortgage insurance adds to the overall cost of your home loan, but there are ways to avoid paying PMI. When you're shopping for a mortgage, make sure to discuss PMI with each lender to figure out how much you can expect to pay. If you have questions about your home loan options with Total Mortgage, make sure to schedule a meeting with one of your mortgage experts.
