Also called PMI, is a type of mortgage insurance you might e required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
PMI is arranged y the lender and provided y private insurance companies. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
How do I pay for PMI?
There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. efore agreeing to a mortgage, ask lenders what choices they offer.
The most common way to pay for PMI is a monthly premium.
- This premium is added to your mortgage payment.
- The premium is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section. You will get a Loan Estimate when you apply for a mortgage, efore you agree to this mortgage.
- The premium is also shown on your Closing Disclosure on page 1, in the Projected Payments section.
Sometimes you pay for PMI with a one-time up-front premium paid at closing.
- This premium is shown on your Loan Estimate and Closing Disclosure on page 2, in section .
- If you make an up-front payment and then move or refinance, you may not e entitled to a refund of the premium.
Sometimes you pay with oth up-front and monthly premiums.
- The up-front premium is shown on your Loan Estimate and Closing Disclosure on page 2, in section .
- The premium added to your monthly mortgage payment is shown on your Loan Estimate and Closing Disclosure on page 1, in the Projected Payments section.
Lenders might offer you more than one option. Ask the loan officer to help you calculate the total costs over a few different timeframes that are realistic for you.
What factors should I consider when deciding whether to choose a loan that requires PMI?
You may e ale to cancel your monthly mortgage insurance premium once you’ve accumulated a certain amount of equity in your home. Learn more aout your rights and ask lenders aout their cancellation policies.
Like other kinds of mortgage insurance, PMI can help you qualify for a loan that you might not otherwise e ale to get. ut, it may increase the cost of your loan. And it doesn’t protect you if you run into prolems on your mortgage—it only protects the lender.
Lenders sometimes offer conventional loans with smaller down payments that do not require PMI. Usually, you will pay a higher interest rate for these loans. Paying a higher interest rate can e more or less expensive than PMI—it depends on a numer of factors, including how long you plan to stay in the home. You may also want to ask a tax advisor aout whether paying more in interest or paying PMI might affect your taxes differently.
orrowers making a low down payment may also want to consider other types of loans, such as an FHA worldloans.online/payday-loans-online-same-day/ review loan. Other types of loans may e more or less expensive than a conventional loan with PMI, depending on your credit score, your down payment amount, the particular lender, and general market conditions.
You may also want to consider saving up the money to make a 20 percent down payment. When you pay 20 percent down, PMI is not required with a conventional loan. You may also receive a lower interest rate with a 20 percent down payment.
Ask lenders to show you detailed pricing for different options so you can see which option is the est deal.
Warning: Private mortgage insurance protects the lender—not you. If you fall ehind on your payments, PMI will not protect you and you can lose your home through foreclosure.