Understanding Private Mortgage Insurance (PMI)
At Pure Lending, we believe that education is the foundation of a confident home-buying experience. Private Mortgage Insurance (PMI) is a common aspect of modern home financing that allows borrowers to reach their homeownership goals sooner, often with a smaller initial investment. Understanding how it works is essential to managing your long-term mortgage strategy.
What is PMI?
PMI is an insurance policy that protects the lender if a borrower defaults on their loan. It is not property insurance or life insurance; rather, it is a risk-mitigation tool that makes it possible for Pure Lending to offer conventional financing to buyers who may not have a 20% down payment saved.
Impact on Monthly Payments
The cost of PMI is typically added to your monthly mortgage payment. This premium is calculated based on several factors, including your credit score, the size of your down payment, and your total loan amount. Over time, as you build equity in your home, this cost can be removed, lowering your total monthly obligation.
Removing or Avoiding PMI
Pure Lending is committed to helping you minimize long-term costs. Here are the primary ways to navigate PMI:
- Automatic Termination: Lenders are often required to cancel PMI when your mortgage balance reaches 78% of the original property value.
- Requested Cancellation: You can typically request removal once you reach 80% equity through regular payments or home appreciation (subject to an appraisal).
- Strategic Avoidance: If you have a 20% down payment, PMI is not required. Alternatively, talk to us about hybrid loan structures or lender-paid options that may fit your goals.
When is it Required?
- When your down payment is less than 20% of the home's purchase price.
- When you refinance a conventional loan with less than 20% equity.
- PMI is specific to conventional loans; other loan types like FHA or VA use different insurance structures.