To PMI or Not to PMI: Understanding Private Mortgage Insurance

by Christy Lister, Mortgage Loan Originator

Each month we will feature a guest blog post from one of our Business Expansion Network (BEN) members. To learn more about BEN click here or give us a call at 815-942-0113.

Whether it is your first time buying a home or your fourth time, it is stressful!! Now add things like PMI A.K.A Private mortgage insurance. Three scary letters/words, what does it mean and do we need it?

Chances are as a first buyer you will be looking for a low down payment loan. By putting down less money, this allows first time buyers, or those getting back on their feet, to grab the keys to their dream home.  This is where PMI comes into play!

Private Mortgage Insurance (PMI): Is mortgage insurance that protects the lender if the loan goes into default because the payments have seized.

Why do I need PMI if I have a low down payment?

On a conventional loan that does not have 20% Equity in the home, you are required to pay PMI. This is because the loan is looked at as more of a liability due to less equity built up in the home.

Do I have to keep PMI for the entire term of the loan?

The good news is NO! Once the loan balance reaches 80% LTV (loan to value) you can request that the PMI be removed, or at 78% LTV the PMI will automatically drop off on conventional loans.

How do I avoid PMI to begin with?

In order to not have PMI payments added to your loan, you just need to put 20% as your down payment.

The best way to determine what will fit your needs is to call me Christy Lister, at 815-955-9970

NMLS#1117253 Member FDIC an Equal housing lender