PMI, or Private Mortgage Insurance makes it possible for qualifying buyers to obtain mortgages with a down payment as low as 3%.

With rising home prices, many buyers especially first time home buyers are unable to front the customary 20 to 30% down payment that most lenders have historically required. PMI insures the lender’s investment when a buyer has contributed little or nothing financially towards their home purchase.

What is private mortgage insurance?

Private mortgage insurance is a type of insurance required by the lender that helps protect the lender against losses due to foreclosure. This protection is provided by private mortgage insurance companies and enables lenders to accept lower down payments then would normally be allowed. 

Who needs PMI?

If your down payment is less than 20% of the home’s negotiated purchase price, the lender will require the borrower to carry PMI. 

How long must a borrower carry PMI?

PMI can usually be cancelled by the home buyer once they have 20% equity in the property. Usually lenders will require an appraisal of the property to verify the equity.

How much does PMI costs?

The average cost of PMI is between $300 and $900 per year. Your lender will provide you with the PMI costs associated with your particular loan product. Premiums are based on the amount and terms of the mortgage and will vary according to the loan-to-value ratio type of loan, and the amount of coverage required by the lender.

What are the payment options for PMI?

PMI can be paid on either an annual, monthly or single payment premium plan.

Last updated on January 24, 2012 by Blake Roberts