By Alan Crawford, Mortgage Loan Officer
In general, if you cannot or do not want to put a 20% down payment on a home, or don’t have a 20% equity stake for a refinance, you will be required to buy a private mortgage insurance (PMI) policy as part of the mortgage process.
It is proven that if a borrower does not have a substantial down payment, then they are far more likely to default. This is why lenders require buyers to borrow no more than 80% of the home price. The problem is that many potential buyers do not have such a large amount of money on hand, resulting in increased PMI participation.
How Do I Get Mortgage Insurance?
There are several different companies that offer PMI, but usually your loan officer will select one for you. Premiums are set by regulations, so there are seldom big differences. Most companies have an automated process that will look at your profile and assign a premium based on your application.
How are Mortgage Insurance Costs Determined?
The cost is determined by a buyer’s credit score, debt-to-income ratio, size of the down payment, loan term, loan type (fixed or adjustable) and loan size.
How Much Will My Mortgage Insurance Cost?
When Do I Stop Paying PMI/MIP?
If you have an FHA loan, you will pay PMI as long as you have the mortgage. If you have a conventional loan with PMI, then when you get your amortization to 78% of the original mortgage it will be removed automatically. If you believe that your equity has reached the 80% level with the help of appreciation, the best bet is to call your lender and see what their process is to remove the extra monthly cost.
Having PMI is a reality for millions of people that may have never been able to own a home without it. If you are looking to buy and do not have 20% down payment, do not be afraid of PMI. The cost is minimal and the benefits are huge. Questions? Contact us here!