PMI in my Mortgage Explained?

If you put less than 20% down to purchaser your home with a conventional loan then you are paying PMI each month. PMI is an acronym for Private Mortgage Insurance and it protects the lender if you stop making payments. A lender has a higher risk on low down payment loans and they require you to pay for the insurance (PMI) to help mitigate their risk.  

What’s the cost?  Good credit and more money down helps get a lower rate but count on between .2% and 2% of your loan value per year. Fear not, you don’t have to pay it forever!  Once you’ve reached 20% equity in the house you can request it be removed. Nowadays PMI is often taken off automatically once you’ve reached 22% equity based upon the original loan amortization schedule.  

Aside from natural appreciation, making significant improvements to the home can get you to 20% equity more quickly. You’ll need an appraisal to verify the value.    

Maybe you’ll consider an FHA or VA loan instead to get out of the PMI? Well, you won’t pay PMI but you’ll still need to compensate the lender for the risk.  FHA’s insurance is called MIP which stands for Mortgage Insurance Premium.  What about VA? Theirs is an upfront Funding Fee.  So, you’ll pay either direction you go. If you are looking to purchase a home in the Dayton, Ohio area, reach out to me and I’ll align you with the right lender.