Private Mortgage Insurance

First time home buyers often have no idea what PMI insurance is. Some confuse PMI with a mortgage insurance policy offered by many life insurance companies that can be bought to pay off the mortgage balance in the event of loss of the insured. Although useful for many when buying a home, Private Mortgage Insurance is a totally different kind of insurance. What is PMI?

PMI is the acronym for private mortgage insurance. It is insurance that protects lenders in the event of a default on a mortgage loan. If a person defaults on their mortgage with PMI the insuring company guarantees to pay the lender the value of the policy to help offset losses. As a result lenders will approve mortgage loans that they otherwise would have not. PMI is mandatory in many cases. PMI if required is in most cases paid monthly and is added to the mortgage payment. However, PMI can also be paid upfront with one single payment, or otherwise split with a smaller upfront single payment and a smaller monthly payment.

Private Mortgage Insurance is required on all FHA and USDA Loans. FHA Loans have much higher PMI costs than USDA Loans. VA Loans charge no PMI. Conventional Loans require PMI with any loan that is bought with less than 20% down. Conventional Loan PMI can cost less than FHA Loans but are usually higher than USDA Loans. Conventional Loan PMI varies according to the down payment made. In any event, PMI on Conventional Loans can be removed when the loan to value reaches 80% or lower. FHA and USDA PMI usually now last for the life of the loan.

Although PMI can be costly, if not for it those with less than 20% down would otherwise most likely not be approved for a mortgage loan. If you would like to find out your financing options for a purchase loan just contact us. We will be glad to help! Contact us at 443-943-6486 or email us.