What is PMI?Jonathan
PMI is private mortgage insurance. If you’re getting a conventional loan and are making of down payment of less than 20% of the purchase price, you generally need to purchase PMI.
This insurance is designed to protect the lender in case of default on the loan and it also allows the borrower to buy a house when they can’t afford to make the traditional 20% down payment.
PMI is provided by a third party, requirements and rates will be provided before the closing. Once you reach 20% equity in the home – either through mortgage payments or rising home values, the PMI will be terminated.
PMI rates are generally between 0.5 percent and 1.8 percent of the original loan amount. According to Freddie Mac, it estimates that most borrowers pay between $30 and $70 each month for every $100,000 borrowed.
The key factors in determining the PMI rate are the loan to value ratio. If you put down 5% you are typically going to have a higher PMI rate than if you put down 15%. The other key factor is the borrower’s credit score.
There are different types of mortgage insurance and borrowers normally make an annual lump sum payment or pay in monthly installments.
Of course we can give you a more detailed explanation of what to expect and your options based on your borrowing needs.