Private Mortgage Insurance

PMI Explained

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What is PMI?

When you are purchasing a home and looking for a mortgage the one thing that is often overlooked is PMI. PMI stands for Private Mortgage Insurance and chances are you will have to pay for it.

PMI is for the lender’s benefit, not for yours. Typically, home buyers who put down less than 20 percent down payment on a conventional loan are required to pay private mortgage insurance. PMI protects the lender in the event that you default on the loan.

Different loan types have different mortgage insurance requirements, i.e. USDA loans. You will want to shop around because some loans have no PMI requirements at all.

Here are some common loan programs and the PMI requirements:

USDA loans: Have a very low MI and also offer 100 percent financing.

FHA loans: These loans now require PMI through ought the life of the loan, even when you reach th2 20% equity mark.

Conventional loans: Require mortgage insurance only if your equity is less than 20 percent.

VA loans: Do not require any PMI.

When getting a loan, be careful of what you are getting, you might be stuck with mortgage insurance for the life of the loan if you use FHA, regardless of how much equity you have in the house.

Another variant you might want to discuss with your mortgage broker is pre-paid MI. Instead of paying month by month, you pay up front for your mortgage insurance at closing. This is only available for conventional loans, and can get you into a bigger home while keeping your payments the same as it would be with a regular FHA loan.