What is Private Mortgage Insurance!

Saturday Home Corner! 

 
What is Private Mortgage Insurance

When you're purchasing a home, you are required to have Private Mortgage Insurance, or PMI, if you're putting less than 20% down.

Private Mortgage Insurance is insurance to protect the lenders against a loss if a borrower defaults on the loan. PMI costs will likely result in a slight increase in your overall monthly payment, but can be a useful strategy for buying a house with a lower down payment. Typical rates are $55/month per $100,000 financed.

When you buy a home, the amount you put down will determine if you are required to have Private Mortgage Insurance. Your lender will look at the amount of your down payment compared it to the sales price to determine your loan-to-value ratio.

An example, if you purchase a home for $200,000 and put $20,000 down, your loan to value ratio is 90%. Typically, if your loan-to-value ratio is more than 80% you'll be required to obtain PMI.

Private Mortgage Insurance is built into your monthly mortgage payment. Your lender collects it, and then sends it to your mortgage insurer separately. Once your loan-to-value ratio hits 80%, you will no longer have to pay PMI. By law, lenders must automatically cancel PMI when the balance hits 78%.