What Is Private Mortgage Insurance (PMI)?

Buying a home is one of the biggest investments in our life which requires careful considerations and enough efforts. But not all of us afford to purchase a home with our little savings and choose to seek lenders help. Borrowers have different loan options which come with various insurance types but most frequently misunderstood aspects of home mortgage is private mortgage insurance (PMI). 

Understanding Private Mortgage Insurance 

When a borrower applies for a mortgage loan, the lender always makes sure that his or her home will have enough equity to pay off the loan balance if goes into foreclosure. To protect themselves from the risk of borrower’s default, the lenders want a buffer of at least 20 percent. This means that if you choose to pay down payment less than 20%, you will be required to pay PMI. In this way, you will get your conventional loan, and the risk of default will reduce automatically.

PMI Virtually all conventional loans with less than a 20% down payment come with the inclusion of private mortgage insurance (PMI). The cost of PMI depends on the size of your loan, insurance carrier and other factors.

PMI sounds an excellent way to make your home purchase quickly without savingmuch (20 percent) for a down payment. For some homeowners, it is the only best option to avail. However, there are several reasons many homeowners avoid paying this insurance. In case your home goes into foreclosure, and the outstanding balance cannot be recouped in any way, the insurance company that issued your private mortgage insurance will pay the lender the difference. 

At Unitedfinancialcounselors.com, we are committed raising the level of financial literacy of each of our client who contacts us for assistance. Our goal is to assist them with all necessary financial education, regardless of their background and other factors.