PMI stands for private mortgage insurance. It is not a female condition.
Private Mortgage Insurance
Private mortgage insurance is a policy that you pay for. Do you know what needs to happen in order for you to collect from this insurance that you pay for? Please don’t kill the messenger but, your mortgage lender is the one who will collect any payouts from this insurance. That’s because the insurance is to cover the mortgage lender in case you default on your loan.
Huh?
That’s correct. You pay for the insurance, but someone else collects the payout.
Why Do I Need Private Mortgage Insurance
When you purchase a home and put down less than 20% of the purchase price, private mortgage insurance is required with a conventional mortgage. And if you’re purchasing with an FHA mortgage, there’s a similar program. Should you default on the loan, the lender will foreclose on the home. The lender will then sell the home. Should the sale bring in less than what the lender is owed, included back interest, the insurance will pay the lender the difference.
However, you won’t need to pay the PMI forever. Once you have built up sufficient equity in the property, which would be 20% of the value, you can then cancel your PMI.
What Does Private Mortgage Insurance Cost
Last year the average buyer made a cash down payment which averaged 10%. First time buyers averaged 6% down. As a result, many buyers did not make the typical 20% down payment. However, this didn’t stop them from buying their dream home because they needed to pay PMI. The cost on the PMI depends upon both your credit score and the amount of the mortgage compared to its value. You can expect pay somewhere between $30 and $70 per month for every $100,000 that you borrow as your PMI premium.
Bottom Line
Even though paying PMI is an expense, don’t let that stop you from buying a home. The expense of PMI will go away, and when it does, that means you’ve gained equity in your home. Give us a call when you’re ready to either buy or sell a home, because we can help.
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