What You Need to Know About PMI

    What You Need to Know About Private Mortgage Insurance (PMI)

    What You Need to Know About Private Mortgage Insurance (PMI) | MyKCM

    Whether it is your first time or your fifth, it is always important to know all the facts when it comes to buying a home. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

    What is PMI?

    Freddie Mac defines PMI as:

    “An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

    Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

    As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

    “The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

    According to the National Association of Realtors, the average down payment for all buyers last year was 13%. For first-time buyers, that number dropped to 7%, while repeat buyers put down 16% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

    Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:What You Need to Know About Private Mortgage Insurance (PMI) | MyKCMThe larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

    “It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

    Bottom Line

    If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and help you make the best decision for you and your family.

    Trackback from your site.

    Sandra Lowrey

    If you're planning to sell your home in the next few months, nothing is more important than knowing a fair asking price. We would love to help you with a FREE Market Analysis. We will use comparable sold listings to help you determine the accurate market value of your home. The Huntsville real estate market is one of the most stable in the country. From being the top in the nation in business growth to the top in real estate growth, Huntsville, AL lives up to its name by being recognized in national publications such as US News & World Report's 2018 list as the No. 7 Best Places to Live, No. 8 Best Cities to Buy a House in America according to Niche 2018 Best Places List, and No. 1 in job growth in the tech industry in 2017 according to StateTech, along with many other accolades. Not to mention our world leading NASA agency and Redstone Arsenal! Let one of our Lowrey Team members help you find your next home in Huntsville or the surrounding areas.

    Leave a Reply