{"id":1401,"date":"2019-10-30T20:41:23","date_gmt":"2019-10-30T20:41:23","guid":{"rendered":"https:\/\/www.khov.com\/blog\/?p=1401"},"modified":"2019-10-30T20:41:30","modified_gmt":"2019-10-30T20:41:30","slug":"private-mortgage-insurance-what-it-is-and-when-you-need-it","status":"publish","type":"post","link":"https:\/\/blog.khov.com\/blog\/private-mortgage-insurance-what-it-is-and-when-you-need-it\/","title":{"rendered":"Private Mortgage Insurance: What It Is and When You Need It"},"content":{"rendered":"\n

Making a 20% down payment on a home isn\u2019t feasible\nfor a lot of buyers. Luckily, many mortgage lenders now offer loan options that\nhave more flexible down payment and credit requirements, and some of these home\nloans allow you to make a down payment as low as 3%. These can be great\noptions, especially for first-time homebuyers. <\/p>\n\n\n\n

But before you make a down payment that\u2019s lower than 20%, you should consider the potential additional costs you\u2019ll have to pay, like private mortgage insurance. <\/strong>All of this mortgage lingo can make the financing process seem confusing, but it doesn\u2019t have to be. In this article, we\u2019ll explain what private mortgage insurance is and when you need it <\/strong>\u2014 plus, how to avoid it.<\/p>\n\n\n\n

What is Private Mortgage Insurance?<\/strong><\/h2>\n\n\n\n

Private mortgage insurance, or PMI, is a type of insurance that you\u2019re required to pay for some types of conventional home loans. Conventional loans are the most popular type of home loan and they\u2019re not backed by the federal government. Lenders require PMI to protect themselves in case you end up in foreclosure. That\u2019s why it\u2019s typically required for buyers who make low down payments, since those loans are considered \u201chigher risk\u201d for the lender. <\/p>\n\n\n\n

The Pros and Cons of Private Mortgage Insurance<\/strong><\/h2>\n\n\n\n

Private mortgage insurance <\/strong>can actually be beneficial for buyers because it allows you the flexibility to make a lower and more affordable down payment. Without this flexibility, many buyers wouldn\u2019t be able to qualify for a mortgage and enjoy the benefits of homeownership<\/a>. Some people believe the extra cost of PMI is a small price to pay for the lifelong memories they\u2019ll make while living in their dream home.<\/p>\n\n\n\n

The downside of private mortgage insurance is that\nyou\u2019ll have pay an added expense each month. PMI protects the lender, but it\u2019s\nan added burden on the borrower. The cost of private mortgage insurance varies\nby buyer, but it typically depends on your credit score and loan amount. Generally,\nthe cost will range from $30 to $70 per month for every $100,000 borrowed. <\/p>\n\n\n\n

For some buyers, the benefits of being able to\nafford a home make the cost of PMI worth it. For others, the additional monthly\ncost is too expensive, and they would prefer to continue to save up and\neventually make a higher down payment down the road. Financing your home isn\u2019t\nblack and white, and there\u2019s no steadfast rule on whether PMI is good or bad\u2014it\nall depends on your individual needs and budget. Deciding whether you should\nmake a lower down payment and pay for PMI depends on your financial\ncircumstances and what payment plan best fits your lifestyle. <\/p>\n\n\n\n

When Do You Need Private Mortgage Insurance?<\/strong><\/h2>\n\n\n\n

Typically,\nif you have a conventional loan with a down payment lower than ten percent,\nyour lender will require you to have private mortgage insurance. With\ngovernment-backed loans, you won\u2019t be required to pay private mortgage\ninsurance, but you might be required to pay another type of mortgage insurance.\nFor example, FHA loans require and upfront mortgage insurance premium and an\nannual premium which you\u2019ll pay monthly. \n<\/p>\n\n\n\n

How Can You Avoid Private Mortgage Insurance?<\/strong><\/h2>\n\n\n\n

The easiest way to avoid PMI is to make a 20% down\npayment on your home. But if you make a lower down payment, this doesn\u2019t mean\nyou\u2019ll be stuck making private mortgage insurance payments forever. Once you\u2019ve\npaid off 20% of the equity of your home, you can cancel your PMI. This means\nyou\u2019ll only be making these payments for a few years. <\/p>\n\n\n\n

Types of Loans that Do Not Require Mortgage Insurance<\/strong><\/h3>\n\n\n\n

While\nyou\u2019ll typically have to pay mortgage insurance on any loan with a low down\npayment, there are a few exceptions. Some lenders will waive private mortgage\ninsurance costs for strong applicants with very high credit scores, even if\nthey don\u2019t make a 20% down payment. Other loans are designed to allow buyers to\nmake a lower down payment and avoid mortgage insurance expenses.<\/p>\n\n\n\n