Everything You Need to Know About PMI
What is private mortgage insurance (PMI)? How much is it? What are the benefits? Private mortgage insurance can be difficult to fully understand or obtain without proper knowledge. Find all these PMI answers and more in this article. Keep reading for in-depth discussions on the basics of PMI and discover all you need to know about private mortgage insurance for home loan success in 2022.
What is Private Mortgage Insurance (PMI)?
PMI is an ‘evil villain’ in the eyes of family and friends who’ll likely tell you to “avoid it at all costs.” But in reality, PMI is a good thing. On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1-year's worth of PMI premiums at closing which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment or ask about other loan program options.
Why is PMI Useful in 2022?
PMI companies write insurance policies to protect approximately the top 20% of the mortgage against default. This depends on the lender's and investor's requirements, the loan-to-value ratio, and the type of loan program involved. Should a default occur the lender will sell the property to liquidate the debt, and is reimbursed by the PMI company for any remaining amount up to the policy value.
Private mortgage insurance is a tool that lets you buy a home without saving for a down payment for years by offering an insurance policy to the lender in case you stop paying your mortgage. The borrower pays the monthly insurance premiums for the policy on the lenders’ behalf. This can be handy for some folks and might be the right solution to your home loan needs in 2022. Contact our trusted advisors with any questions about PMI to see if it's a proper fit for you this year!
How Much Does PMI Cost?
How much you need to pay for PMI is dependent on several factors including loan amount, down payment, credit score, and debt-to-income ratio. PMI costs vary from insurer to insurer, and from plan to plan. PMI can be just a few dollars a month to several hundred dollars a month. A higher down payment and credit score combined with a low debt to income ratio will result in the lowest PMI premium.
At Equity Mortgage, we work with a variety of clients with varying degrees of mortgage needs. We offer our clients alternative options to their current loan programs with our wide range of mortgage products and flexible lending practices.
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* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.