Mortgage Education: What Is PMI?
Abstract
What Is Private Mortgage Insurance? PMI is a type of insurance that is generally required when a homebuyer purchases a home with conventional financing and puts less than 20% down. Though PMI protects the lender, not the borrower, borrowers also benefit from private mortgage insurance in the form of more accessible mortgage loan options. How Much Does Mortgage Insurance Cost? Mortgage insurance typically costs you between 0.5% and 1% of the entire loan amount annually. If you have a $200,000 loan, at the higher PMI cost of 1%, your annual mortgage insurance premiums could total $2,000 each year. Paying for PMI There are a variety of choices available when paying for PMI. Each will vary based on your individual financial situation: Borrower-paid mortgage insurance: This type of mortgage insurance is a monthly payment included as part of your regular monthly mortgage payments. For borrowers who qualify for a home loan now, and who don't want to wait to save up a substantial down payment, mortgage insurance is often an acceptable price to pay to buy a home with no down payment or a low down payment. Ask your mortgage loan advisor about the down payment options available to you, including your options for gift funds, second mortgages, and mortgage insurance if you're getting a conventional loan and want to put less than 20% down.
