BMI Federal Credit Union
Private Mortgage Insurance
What You Need to Know
Summer is home buying season, which means it’s time to start looking into mortgages, realtors and trying to cipher your way through terms that make no sense to you. One of these terms that can be particularly confusing is PMI – or Private Mortgage Insurance. What is PMI and why is it important to you? This blog post will run through the most important things you need to know about PMI, and how it can affect you in your home buying search.
What is PMI? PMI stands for Private Mortgage Insurance, and it’s basically insurance that protects the lender in the event that you default on your loan. According to the Consumer Financial Protection Bureau, PMI is usually required if you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price.
- How do I pay for PMI? Payment options are provided by your lender – some lenders will offer several options while others may only offer one. Make sure to ask your lender what options they offer. Here are some of the more common ones:
Monthly Premium. This is the most common way to pay for PMI, with the premium added to your monthly mortgage payment.
Upfront Premium. This is a one-time payment made at closing. With this option, be aware that you may not be entitled to a refund if you refinance.
Both Upfront and Monthly Premiums.
How much does PMI cost? Rates vary, but usually the lower your down payment and/or credit score the higher your premium; and the higher your down payment and/or credit score, the lower your premium. According to Zillow.com, the premiums for PMI usually range from $30-$70 a month for every $100,000 borrowed. So for example, if you bought a home with a value of $300,000, you’ll pay about $150 a month for PMI.
How long do I have to pay PMI? According to Zillow.com, when your loan-to-value ratio hits 80 percent, you can contact your lender and request an end to your PMI payments. For instance, if your home is worth $200,000 and you owe $160,000, your loan-to-ratio value is now 80%, and you can ask your lender to stop your PMI payments.
- Is there a way to get out of paying PMI? You typically only have to pay PMI if you make a down payment that is less than 20 percent of your home’s purchase price. But there are ways to get around paying PMI, even if you can’t afford to put down the magic number of 20 percent. According to this article from the Washington Post, there are special programs that offer deals to first time homebuyers. For example, BMI FCU has a First-Time Homebuyer program that, as part of completing the program, will not require you to pay PMI. Even if you can only put down as little as 3 percent, you won’t have to pay PMI.
Private Mortgage Insurance can be a hassle, but once you know how to navigate it the waters become a little clearer. Stay tuned for more blog posts with helpful mortgage-related tips and tricks.