Today we’re going to talk about PMI or private mortgage insurance. When you as a home buyer make a down payment that is less than 20% you are going to be required to purchase private mortgage insurance if you are doing a conventional style loan. This private mortgage insurance or PMI protects the lender in case a foreclosure happens. The cost of PMI is usually between 0.3 and 1.5% of your original loan amount per year. That number does vary based on the size of your down payment and your credit score. On some loans, the PMI doesn’t stay around forever, as on some loans it will cancel so you don’t have to refi-out.
There are four types of mortgage insurance that I’ll go over really quickly.
The first is monthly, which most of you probably know about. It’s a premium that’s included in your monthly mortgage payment. Once you paid your mortgage down to 80% of the original sales price. With conventional financing, you can call to request that it be removed, but as 78% of the original loan amount and purchase price, the mortgage insurance will automatically cancel.
The next is single premium mortgage insurance, which is when you buy out the monthly premium with a flat fee. This is paid as a closing cost, eliminating the need for any kind of monthly mortgage insurance. Depending on your down payment, the premium may be able to be financed into your home loan as well instead of paid in cash at closing.
Then there’s split mortgage insurance, which is a little bit of monthly and a little bit of single premium. You can pay a certain percentage upfront and this will reduce your monthly mortgage insurance payment. So it’s a really great option if you can, uh, put this together this way.
The fourth option is lender paid mortgage insurance, which is when the mortgage insurance premium is paid by the lender and it’s built into an interest rate. And even though it sounds like your payment will be higher, it actually can produce a lower monthly payment because you’re not having this single amount of mortgage insurance included in the payment.
If you have questions, let me know.