Private Mortgage Insurance Explained

By Carrie Buscemi, Sr. Mortgage Loan Officer

Lenders and investors typically require private mortgage insurance (PMI) for loans with down payments of less than 20%.  Mortgage insurance provides lenders a financial guaranty should a loan go into foreclosure, which allows many lenders to accept a down payment of less than 20% when approving home loans. PMI is the private sector’s alternative to the Federal Housing Administration (FHA) mortgage insurance, a government program backed by tax payers. Both programs help borrowers purchase homes with less than a 20% down payment.  Choosing the best option will depend on your individual situation.

Benefits of PMI

  • Buying a home faster – being able to save for a down payment will take less time. First time home buyers may be eligible to put as little as 3% down.
  • Increased buying power – if you have a certain amount set aside for a down payment, using mortgage insurance may help you afford more home than if you put 20% down.
  • Expanded cash flow options – you may put less down and keep cash for other uses, like home improvements or emergencies.
  • Receiving a refund – some mortgage insurance options allow for a prorated refund of premiums upon cancellation.
  • Faster approvals – loans with mortgage insurance are typically approved sooner than non-mortgage insurance or government-backed structures like FHA.
  • Cancelling coverage – many mortgage insurance options may be cancelled when you hit 78%  of the loan value.

PMI Costs

The most common payment is the monthly PMI premium paid by the borrower.  Many factors go into calculating what the PMI payment would be, such as credit history, the total down payment, type and term of the loan.  You can call our office at 877.312.9033 to talk to any of our loan officers about your different loan options, including private mortgage insurance.  PMI may not be the right fit for every mortgage situation, but in many cases, it can help you buy sooner, buy more, or save money for other needs.  We can help pick the option that works best for you.