Learn The Basics Of Private Mortgage Insurance

What Is Private Mortgage Insurance?

Like other kinds, PMI is a type of mortgage insurance which protects the lender and not you if you stop making payments on your conventional loans. Private mortgage insurance is provided by the private insurance companies and arranged by the mortgage lender. Usually, PMI is required if you have a conventional loan program on which you make less than 20% down payment (of the home purchase price).

How Do I Pay For Private Mortgage Insurance?

Depending on your lender, you will be offered several ways to pay for your PMI. Arrange a question answer session with your lender and find out about your possible options.

The most common and easy way is to:

• Add your PMI premium to your monthly mortgage payment. 

How Private Mortgage Insurance Differs From FHA Loan?

Borrowers who want to make low down payments have different options such as an FHA loan and other types of loans which may be more or less favorable than a Conventional loan with PMI.

On a conventional loan, your lender will arrange a PMI with a private company. Your PMI rates vary according to your down payment figure and credit score but are cheaper than FHA rates offered to borrowers of FHA loan with good credit.

How To Avoid Private Mortgage Insurance

• You can make 20% or more down payments. That’s the easiest way to avoid PMI, but not everyone can afford.
• You can set a higher rate of interest. Some lenders offer the borrower an option of paying a high interest rate in exchange to avoid private mortgage insurance.
• The lender may sometimes offer a conventional loan with low down payments that do not require PMI. But, in return they may require you to pay high-interest rates on these loans.

Before you finalize, ask your lender to show the detailed pricing options so you can choose the best deal out of it.

Best Tip To Avoid PMI

If you're planning to buy a home, start saving enough for a 20% down payment. Don’t rush out to buy a home unless you save enough for your down payment. Otherwise, your lender will force you to get private mortgage insurance prior to signing off on the conventional loan.

Should you have any questions related to PMI, please contact us.