What You Need To Know About Private Mortgage Insurance

Dated: 04/09/2018

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Mortgage insurance allows a lot of people to become homeowners who otherwise might not be able to by allowing you to put down less money than the traditional 20%. It’s natural to want to put down as little money as possible, but this will likely require you to have Private Mortgage Insurance (PMI). As real estate professionals, we'll help you consider the real costs now versus down the road.

So what is PMI? The concept behind mortgage insurance is not quite the same as with other insurance plans. You pay a monthly premium to the insurer who protects the mortgage lender in the event you default. PMI is for the benefit of the mortgage lender, not yours. Because the lender is assuming additional risk by accepting a lower amount of upfront money towards the purchase, they will often call for the borrower to purchase private mortgage insurance. The cost of PMI is based on the size and type of mortgage loan you are applying for, your down payment and credit score. The average annual cost can typically range from 0.41% to 2.25%.

You might be wondering if you'll be paying PMI for the entire duration of the loan. Once your mortgage principal balance is less than 80% of the original appraised value or the current market value of your home, whichever is less, you can generally cancel the private mortgage insurance. Mortgage lenders are required to tell you at closing how long it will take for you to reach that loan-to-value mark, and update you annually of any cancellation options.

Mortgage insurance for FHA or VA loans operate a little differently from conventional mortgages so make sure to consult your team of real estate experts when weighing your options. 

When deciding how much to put down, it's ultimately a matter of balancing your short-term financial capabilities with your future savings and earnings potential to determine the best long-term financial result for you. Feel free to email or call us if you have any questions about down payments or PMI.

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Michael - Colette Thiel

Michael Thiel, CalBRE#01893556 Colette Thiel, CalBRE#01455972 ....

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