Buying a home is exciting, but you need to look at your financial position and understand how much house you can afford before making your final decision. However, you might have heard about private mortgage insurance if you’re interested in getting financial help during the home-buying process.
What Exactly Is Private Mortgage Insurance?
PMI is a type of insurance policy that your mortgage lender often requires if you buy a home and make less than a 20% down payment of the home’s purchase price. This insurance protects the mortgage lender against losses if you default on your payment, making them feel more comfortable taking the risk of a loan.
Who’s Required To Have PMI?
You may have to get PMI if you want to buy a house or refinance your mortgage. Most lenders require at least a 20% down payment of the home purchase price. If you can’t afford to put down at least 20%, you may have to get PMI. Also, most lenders require an LTV of 80% or less to avoid getting PMI if you’re refinancing your current mortgage. You may need PMI if your LTV ratio is over 80%.
How Much Does Private Mortgage Insurance Cost?
The cost of PMI depends on the amount you want to borrow, your credit score, the size of your down payment, and your insurance company. Generally, annual costs may range from 0.3% to 1.5%. However, the smaller your down payment, the higher your premium will be.
How To Avoid PMI
You can avoid PMI if you pay a 20% down payment. While this is a significant amount of funds, you could save thousands of dollars.
